When market leads innovation: The interplay of internationalisation, innovation and productivity among Swedish wood manufacturing <scp>SMEs</scp>

Abstract We examine the effects of innovation, productivity and export on small and medium‐sized enterprises (SMEs) in the Swedish wood manufacturing sector. Previous studies have produced mixed results on these topics, which may be due to methodological limitations, contextual differences and inadequate operationalisation of key variables. To address these gaps, we adopt a more specific and rigorous approach, focusing on product innovation and using sophisticated statistical methods to account for endogeneity and other confounding factors. We use a longitudinal dataset to analyse how SMEs select into export markets and learn from exporting, as well as how other factors influence their export performance. We find that innovation and export have a nonlinear relationship, which depends on the level of interaction between SMEs and their international customers, and the degree of fit between their innovative products and the export market. In particular, when SMEs have high international customer engagement, they are more likely to innovate in ways that enhance their export potential. Regarding productivity, we find that self‐selection is more advantageous for SMEs, while learning‐by‐exporting is more consistent in controlling for unobserved factors.