In this paper, we investigate differences in innovation activities between firms with international
activities and firms without such activities, utilizing the firm-level data underlying the Japanese
National Innovation Surveys for 2003 and 2009. We quantitatively examine the factors which account
for differences in innovation output depending on the mode of international activities, employing the
innovation accounting framework proposed by Mairesse and Mohnen (2001, 2002) and Mohnen,
Mairesse, and Dagenais (2006).
We find that internationally engaged firms use more innovation inputs and generate more innovation
output. In particular, firms with R&D establishments abroad show the best innovation performance,
followed, in that order, by firms with both sales and production establishments abroad, firms with
overseas sales only, and firms with production establishments abroad only. We further find that a
significant part of the higher innovation performance of firms with international activities can be
explained by their greater intra-group or intra-firm knowledge spillovers, R&D intensity, perceived
competitive pressure, and proximity to basic research. However, more importantly, firms with
international activities are much more efficient in innovation when measuring innovation output in
terms of the sales turnover of innovative products. Although engagement in international activities
itself does not raise the probability that a firm successfully develops a new product or process, it
greatly increases the sales amount of innovative products.
