Complementarities between R&D investment and exporting-Evidence from China

•Export and R&D investment demonstrate complementary impacts on productivity of Chinese firms.•Multinomial treatment effect model is adopted to remove selection bias.•The exporting status increases firms' tendency to invest in R&D, and vice versa.•The decision of firms to export shows different patterns in labor- and capital-intensive sectors.•In all sectors, more productive firms select themselves to invest in R&D.

In view of the importance of deliberate R&D activities in achieving productivity gain via exports for firms in developing economies, this study explores a potential complementarity between firms' decision to export or to invest in R&D empirically. The evidence from Chinese manufacturing firms reveals a complementarity between exporting and R&D investment in their impacts on firm's productivity. The complementarity test is implemented based on the supermodularity theory. After disentangling the selection bias from the decision to export and to invest R&D through mixed multinomial Logit regression, the multinomial treatment effect estimation identifies that the joint decisions improve firms' labor productivity by 0.283. Moreover, the exporting status increases firms' tendency to invest in R&D, and vice versa, thus implying the existence of complementarity from the view of firms' decision.