Innovation and the Creative Destruction of Trade: A Study of the Intensive and Extensive Margins of Trade for French Firms

Our study of French exporters examines the causal relationship between innovation and extensive and intensive margins of trade using a propensity score matching and difference-in-differences approach. Results show innovation has a positive impact on total exports driven primarily through the intensive margin. To understand the absence of an extensive margin effect, we show new and terminated product-country transactions increase at similar rates in the year of innovation for the treated and control groups but net trade creation for innovators outstrips that of non-innovators in the following two years implying firms need to innovate in order to survive in export markets.