Irish firms with international trade links are more likely to invest in innovation; have a higher probability of adopting new technologies; and are, in general, more productive than firms serving only the domestic market, according to new research.

A study carried out by the Economic and Social Research Institute (ESRI) found foreign-owned firms had significantly higher innovation expenditure per employee compared to firms that served only the home market.

Equally, firms with international trading links were particularly more likely to introduce new or significantly improved products on the back of innovation.

The research was based on data from Community Innovation Survey data over the period between 2004 and 2008.

It suggested larger firms and firms with higher human capital intensity were more likely to invest in innovation.

In contrast to international norms, innovation expenditure in Irish firms was not significantly linked to innovation outputs above other factors driving innovation output such as firm size, international activities, co-operation for innovation with other enterprises.

This result might be linked to lagged effects of innovation expenditure on the innovation output beyond those captured by the data analysed, the report's authors, Iulia Siedschlag and Xiaoheng Zhang said.

They also pinpointed the important role multinationals play in the innovation performance in Ireland.

The report’s findings had three suggested implications for the State’s enterprise policies.

First, measures aimed at incentivising innovation and productivity should be tied into policies supporting the engagement of firms in international markets.

Second, strengthening co-operation for innovation within the national and global innovation systems is an important way to generate innovation output.

Third, given the increasing internationalisation of R&D, “innovation policies need to be designed in an international context”.