This paper uses data from the 2013 World Bank Enterprise Survey and the follow-up Innovation Survey to examine the role of innovation in
driving export growth at firm level in Uganda, and whether firms’ innovation behaviour is simply a reaction to its exports condition. To address
potential endogeneity issues, we use instrumental variables (IV) for actual innovative activity and a two-stage least squares estimation method.
We find statistically significant casual effect of innovation on exports in all IV specifications. The size of this effect ranges from 3.1 to 11
percentage points of additional export share for firms that introduced product or process innovation. This effect is slightly larger for process
innovation than for product innovations, and for services compared to the manufacturing sector—suggesting that while product variety and
quality improvement may harness exports, productivity growth may have a greater impact on exports.