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Determinants of Innovation Capability in Small UK Firms: An Empirical Analysis

  • Henny Romijn and Manuel Albaladejo

The paper is an empirical investigation of key internal and external sources of innovation capability in small and medium firms (SME) in the UK. An experimental measure of innovation capability is designed, which captures not merely the occurrence of innovations but also their scientific complexity and originality. The results obtained with this measure compare favourably to those obtained with more conventional statistics. A range of factors internal to firms are found to be relevant, including owners' technical education and prior working experience in large firms and R&D institutions, technical skills of the workforce, and investments in R&D and training. Significant external factors are: public financial support for R&D, and interaction with nearby R&D and training institutions. Although interaction with customers, suppliers and similar-oriented firms are more frequent than the former, there is no evidence that intensive linkages of this kind would be important for innovative capability. These findings do not support the thrust of current UK policy, which seeks to promote SME innovative performance through the formation of geographical clusters of firms in similar lines of business

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Paper provided by Queen Elizabeth House, University of Oxford in its series QEH Working Papers with number qehwps40.

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Handle: RePEc:qeh:qehwps:qehwps40
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  1. Malerba, Franco, 1992. "Learning by Firms and Incremental Technical Change," Economic Journal, Royal Economic Society, vol. 102(413), pages 845-59, July.
  2. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-95, December.
  3. Stewart, Frances & Ghani, Ejaz, 1991. "How significant are externalities for development?," World Development, Elsevier, vol. 19(6), pages 569-594, June.
  4. Paul S. Adler & Kim B. Clark, 1991. "Behind the Learning Curve: A Sketch of the Learning Process," Management Science, INFORMS, vol. 37(3), pages 267-281, March.
  5. Cooke, Philip & Gomez Uranga, Mikel & Etxebarria, Goio, 1997. "Regional innovation systems: Institutional and organisational dimensions," Research Policy, Elsevier, vol. 26(4-5), pages 475-491, December.
  6. Rolf Sternberg, 1999. "Innovative Linkages and Proximity: Empirical Results from Recent Surveys of Small and Medium Sized Firms in German Regions," Regional Studies, Taylor & Francis Journals, vol. 33(6), pages 529-540.
  7. Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, vol. 99(397), pages 569-96, September.
  8. Robert Huggins, 1998. "Local Business Co-operation and Training and Enterprise Councils: The Development of Inter-firm Networks," Regional Studies, Taylor & Francis Journals, vol. 32(9), pages 813-826.
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