Studying Complementarities between Modes of Innovation Strategies in Transition Economies

This paper explores the existing interrelationships between the firm’s innovation activities and productivity performance as well as studies complementarities among innovation strategies in transition economies. Specifically, on the basis of BEEPS V dataset and using extended CDM model, we have investigated the existence of possible complementarities between various types of innovation modes (product, process, marketing and organizational innovations) in their impact on the firm’s productivity. The traditional CDM framework was modified through accounting for the simultaneous occurrence of different types of innovation inputs - in-house and out-house knowledge generation activities - and through the estimation of their joint effects on various modes of innovation. In compliance with the results of previous studies, we find that CDM model properly describes the existing interrelations between the firm’s innovation activity and its productivity performance in transition economies. In particular, our results show that the firm’s decisions on in-house and out-house knowledge development processes are interdependent. The study results suggest that implementation of internal R&D strategy can stimulate not only technological innovations but non-technological innovative activity as well. However, we find that external knowledge acquisition strategy has positive and statistically significant effect on innovation output only when the firm’s innovation mix incorporates non-technological novelties. Our results show that only those modes of innovation output combinations that assume all the types of innovations and/or the combination of process and non-technological innovations have positive and statistically significant impact on the firm’s productivity. Another vital point of this analysis is that conducting either product or process innovation in isolation will result in a negative productivity performance. The important contribution of this paper is that it tests for complementarity between innovation strategies of firms in transition economies. Our tests reveal complementarity between the following two combinations of innovations: product/process and process/non-technological innovations. The key policy implication of our findings is that while performing all the three innovation modes jointly has a positive impact on firm’s performance, economically preferred options are: either to choose pure technological innovation strategy (product&process mode) or to perform strategy focused on organizational restructuring (process/non-technological mode).