Determinants of innovation activities in small and open economies: the Lebanese business sector

The question of the determinants of innovation activities in the business sector is one of the issues that take the most attention in the theoretical and empirical researches in the economics of innovation field. This paper is probably the first study that develops an econometric approach to analyze firms? decisions to innovate in Lebanon. More precisely, we analyze the impact of firm characteristics, competition environment, human capital, R&D activities, partnership and technological transfer on good, process, organizational or marketing innovation. We use a survey of 478 industrial enterprises conducted by the local National Council for Scientific Research (CNRS) with support of the World Bank during 2011-2012. Using a probit model, the results confirm the Schumpeterian hypothesis stipulating that larger firms present a greater capability to innovate. At the same time, the market share has a positive but not significant effect on innovation. We also find significant statistical relationship between R&D activities, partnerships and technological transfers with innovation decision of Lebanese firms. In terms of policy recommendations, these results confirm the necessity to give incentives to rather large firms in order to boost innovation in the country and at the same time to implement new incentives to SMEs for the promotion of partnerships with universities, research centers and other firms, including firms in the same sector. Finally, our results confirm the point of view that the Schumpeterian hypothesis seems to suite better for small and open developing countries than developed ones. JEL Codes: O12, O3, C25