The availability of firm level data and recent developments in economic growth theory highlight the importance of innovation for sustained output and productivity growth. In recent years, firm level survey based data on innovation, especially, from various waves of the harmonized Community Innovation Surveys (CIS) in Europe, has helped in advancing our understanding of innovation processes, strategies, mechanisms and their impact on firm performance. Consequently, a growing body of literature has evaluated the impact of innovation on firm performance. A large number of these studies report a positive impact of technological innovation on labor productivity (Crépon et al., 1998; Lööf et al., 2003; Janz et al., 2004; Criscuolo, 2009; Mairesse et al., 2012; Hashi and Stojcic, 2013), profitability (Jefferson et al., 2006; Lööf and Heshmati, 2006), firm growth (Coad and Rao, 2008), openness (Kleinknecht and Oostendorp, 2002; Lachenmaier and Woessmann, 2006) and other firm level outcomes.1 In the wake of an extraordinary increase in access to information and new markets in recent years (primarily due to advances in information technology and globalization), firms in developing countries are experiencing a constantly changing landscape in the market for their products. This on one hand is providing much needed knowledge flows into developing economies, while also forcing firms to improve their competitiveness on the other. In such a situation, one would expect firms (especially those which export) to invest in new technology and also introduce new and improved products in their markets. However, our understanding of innovation and its economic impact is still limited when it comes to developing countries; most mainstream economists tend to assume that openness and easy access to foreign technology is all that matters in improving firms’ productivity in the context of developing countries (Chudnovsky et al., 2006). Of course much of this lack of depth could be attributed to the limited availability of detailed firm level data on innovation processes in developing countries. The main purpose of this paper is to contribute to the thin developing country literature by using firm level data from a key export oriented manufacturing sector (textiles and apparel) in Pakistan. The contribution of this paper is twofold: first, by using the primary data from a manufacturing sector of a developing country, the paper contributes to the understanding of firm level innovation outcomes in developing countries and their implications for firm performance. Second, the paper builds on a multi-stage structural model proposed by Crépon et al. (1998) by extending the model in two important aspects by taking into account the fact that: (i) a firm’s decision to engage in innovation activities and committing resources to them depends on the competitive environment of the sector, and (ii) the innovative firms follow multiple innovation strategies to maximize their innovation related outcomes.