# Innovation and export activities in the German mechanical engineering sector: an application of testing restrictions in production analysis

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## Abstract

Since Solow (Q J Econ 70:65–94, 1956) the economic literature has widely accepted innovation and technological progress as the central drivers of long-term economic growth. From the microeconomic perspective, this has led to the idea that the growth effects on the macroeconomic level should be reflected in greater competitiveness of the firms. Although innovation effort does not always translate into greater competitiveness, it is recognized that innovation is, in an appropriate sense, unique and differs from other inputs like labor or capital. Nonetheless, often this uniqueness is left unspecified. We analyze two arguments rendering innovation special, the first related to partly non-discretionary innovation input levels and the second to the induced increase in the firm’s competitiveness on the global market. Methodologically the analysis is based on restriction tests in non-parametric frontier models, where we use and extend tests proposed by Simar and Wilson (Commun Stat Simul Comput 30(1):159–184, 2001; J Prod Anal, forthcoming, 2010). The empirical data is taken from the German Community Innovation Survey 2007 (CIS 2007), where we focus on mechanical engineering firms. Our results are consistent with the explanation of the firms’ inability to freely choose the level of innovation inputs. However, we do not find significant evidence that increased innovation activities correspond to an increase in the ability to serve the global market.

## Keywords

Data envelopment analysis Bootstrap Subsampling Nonparametric efficiency estimation, technical efficiency Production Innovation Exports CIS Mechanical engineering Germany Discretionary## JEL Classification

C14 C40 C60 D20 L60 O30## Notes

### Acknowledgments

L. Simar acknowledges support from the “Interuniversity Attraction Pole”, Phase VI (No. P6/03) of the Belgian Science Policy, from the Helga & Wolfgang Gaul Stiftung, Fakultät für Wirtschaftswissenschaften, Universität Karlsruhe and from the Chair of Excellency “Pierre de Fermat”, Région Midi-Pyrénées, France.

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