In this article we extend the model developed by Bogliacino and Pianta (Industrial and Corporate Change 22 649, 2013, b) on the link between R&D, innovation and economic performance, considering the impact of innovation on export success. We develop a simultaneous three equation model in order to investigate the existence of a ‘virtuous circle’ between industries’ R&D, share of product innovators and export market shares. We investigate empirically – at the industry level – three key relationships affecting the dynamics of innovation and export performance: first, the capaciTY of firms to translate their R&D efforts in new products; second, the role of innovation as a determinant of export market shares; third, the export success as a driver of new R&D efforts. The model is tested for 38 manufacturing and service sectors of six European countries over three time periods, from 1995 to 2010. The model effectively accounts for the dynamics of R&D efforts, innovation and international performance of European industries. Moreover, important differences across countries emerge when we split our sample into a Northern group – Germany, the Netherlands and the United Kingdom – and a Southern group – France, Italy and Spain. We find that the ‘virtuous circle’ between innovation and competitiveness holds for Northern economies only, while Southern industries fail to translate innovation efforts into export success.
