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Innovative Firms or Innovative Owners? Determinants of Innovation in Micro, Small, and Medium Enterprises

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Author Info

  • de Mel, Suresh

    () (University of Peradeniya)

  • McKenzie, David

    () (World Bank)

  • Woodruff, Christopher

    () (University of Warwick)

Abstract

Innovation is key to technology adoption and creation, and to explaining the vast differences in productivity across and within countries. Despite the central role of the entrepreneur in the innovation process, data limitations have restricted standard analysis of the determinants of innovation to consideration of the role of firm characteristics. We develop a model of innovation which incorporates the role of both owner and firm characteristics, and use this to determine how product, process, marketing and organizational innovations should vary with firm size and competition. We then use a new large representative survey from Sri Lanka to test this model and to examine whether and how owner characteristics matter for innovation. The survey also allows analysis of the incidence of innovation in micro and small firms, which have traditionally been overlooked in the study of innovation, despite these firms comprising the majority of firms in developing countries. More than one quarter of microenterprises are found to be engaging in innovation, with marketing innovations the most common. As predicted by our model, firm size is found to have a stronger positive effect, and competition a stronger negative effect, on process and organizational innovations than on product innovations. Owner ability, personality traits, and ethnicity are found to have a significant and substantial impact on the likelihood of a firm innovating, confirming the importance of the entrepreneur in the innovation process.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3962.

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Length: 34 pages
Date of creation: Jan 2009
Date of revision:
Handle: RePEc:iza:izadps:dp3962

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Keywords: innovation; microenterprises; SMEs; development;

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References

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  1. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
  2. Aghion, P. & Howitt, P., 1990. "A Model Of Growth Through Creative Destruction," DELTA Working Papers 90-12, DELTA (Ecole normale supérieure).
  3. Lee, Cassey, 2004. "The Determinants of Innovation in the Malaysian Manufacturing Sector: An Econometric Analysis at the Firm Level," Centre on Regulation and Competition (CRC) Working papers 30670, University of Manchester, Institute for Development Policy and Management (IDPM).
  4. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S71-102, October.
  5. de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2008. "Who Are the Microenterprise Owners? Evidence from Sri Lanka on Tokman v. de Soto," IZA Discussion Papers 3511, Institute for the Study of Labor (IZA).
  6. King, Robert G. & Levine, Ross, 1993. "Finance, entrepreneurship and growth: Theory and evidence," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 513-542, December.
  7. Cohen, Wesley M. & Levin, Richard C., 1989. "Empirical studies of innovation and market structure," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 18, pages 1059-1107 Elsevier.
  8. Rita Almeida & Ana Margarida Fernandes, 2008. "Openness and Technological Innovations in Developing Countries: Evidence from Firm-Level Surveys," The Journal of Development Studies, Taylor and Francis Journals, vol. 44(5), pages 701-727.
  9. Feder, Gershon & Just, Richard E & Zilberman, David, 1985. "Adoption of Agricultural Innovations in Developing Countries: A Survey," Economic Development and Cultural Change, University of Chicago Press, vol. 33(2), pages 255-98, January.
  10. Klette, Tor Jakob & Kortum, Samuel S, 2002. "Innovating Firms and Aggregate Innovation," CEPR Discussion Papers 3248, C.E.P.R. Discussion Papers.
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Cited by:
  1. Shawn Cole & Martin Kanz & Leora Klapper, 2012. "Incentivizing Calculated Risk-Taking: Evidence from an Experiment with Commercial Bank Loan Officers," Harvard Business School Working Papers 13-002, Harvard Business School.
  2. Khamis, Melanie, 2009. "A Note on Informality in the Labor Market," IZA Discussion Papers 4676, Institute for the Study of Labor (IZA).
  3. Waheed, Abdul, 2011. "Size, competition, and innovative activities: a developing world perspective," UNU-MERIT Working Paper Series 052, United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology.
  4. Fox, Louise & Sohnesen , Thomas Pave, 2012. "Household enterprises in Sub-Saharan Africa : why they matter for growth, jobs, and livelihoods," Policy Research Working Paper Series 6184, The World Bank.
  5. Goldbach, Stefan, 2012. "Innovation and Education: Is there a 'Nerd Effect'?," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62307, Verein für Socialpolitik / German Economic Association.
  6. Almeida, Rita K. & Aterido, Reyes, 2010. "The investment in job training : why are SMEs lagging so much behind?," Social Protection Discussion Papers 54967, The World Bank.
  7. Almeida, Rita K. & Aterido, Reyes, 2010. "Investment in job training : why are SMES lagging so much behind ?," Policy Research Working Paper Series 5358, The World Bank.

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