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<p>We study the implications of trade in services for firm innovation. Using a quasi-experimental shift-share design, we find that access to foreign knowledge-related services improves the innovativeness of domestic firms and complements their indigenously sourced R&amp;D. To confront this evidence, we develop a theoretical model. It demonstrates outsourcing can foster firm’s innovation efficiency by mitigating decreasing economies of scale in in-house innovation efforts. As a result, firms become more likely to outsource innovation efforts as they become more innovative, whereas the prevalence of offshoring depends on its associated trade costs.</p>

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Trade in knowledge services and firm innovation

  • 期刊论文

  • 出版模式：

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  • 发表日期：

    2026年2月21日

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  • Bastian Krieger,
  • Fabian Trottner

摘要

We study the implications of trade in services for firm innovation. Using a quasi-experimental shift-share design, we find that access to foreign knowledge-related services improves the innovativeness of domestic firms and complements their indigenously sourced R&D. To confront this evidence, we develop a theoretical model. It demonstrates outsourcing can foster firm’s innovation efficiency by mitigating decreasing economies of scale in in-house innovation efforts. As a result, firms become more likely to outsource innovation efforts as they become more innovative, whereas the prevalence of offshoring depends on its associated trade costs.