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Innovative firms or innovative owners ? determinants of innovation in micro, small, and medium enterprises

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  • de Mel, Suresh
  • McKenzie, David
  • Woodruff, Christopher

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. The authors develop a model of innovation that 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. They 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. The analysis finds that more than one-quarter of the microenterprises are engaging in innovation, with marketing innovations the most common. As predicted by the model, firm size has 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 have a significant and substantial impact on the likelihood of a firm innovating, confirming the importance of the entrepreneur in the innovation process.

Suggested Citation

  • de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2009. "Innovative firms or innovative owners ? determinants of innovation in micro, small, and medium enterprises," Policy Research Working Paper Series 4934, The World Bank.
  • Handle: RePEc:wbk:wbrwps:4934
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    References listed on IDEAS

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    3. de Mel, Suresh & McKenzie, David & Woodruff, Christopher, 2008. "Who are the microenterprise owners ? Evidence from Sri Lanka on Tokman v. de Soto," Policy Research Working Paper Series 4635, The World Bank.
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    Cited by:

    1. Jocelyn Olivari, 2016. "Entrepreneurial traits and firm innovation," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 6(3), pages 339-360, December.
    2. Shawn Cole & Martin Kanz & Leora Klapper, 2015. "Incentivizing Calculated Risk-Taking: Evidence from an Experiment with Commercial Bank Loan Officers," Journal of Finance, American Finance Association, vol. 70(2), pages 537-575, April.
    3. El Kalak, Izidin & Hudson, Robert, 2016. "The effect of size on the failure probabilities of SMEs: An empirical study on the US market using discrete hazard model," International Review of Financial Analysis, Elsevier, vol. 43(C), pages 135-145.
    4. Almeida, Rita K. & Aterido, Reyes, 2010. "The Investment in Job Training: Why Are SMEs Lagging So Much Behind?," IZA Discussion Papers 4981, Institute for the Study of Labor (IZA).
    5. Agénor, Pierre-Richard & Canuto, Otaviano, 2017. "Access to finance, product innovation and middle-income traps," Research in Economics, Elsevier, vol. 71(2), pages 337-355.
    6. Melanie Khamis, 2012. "A Note On Informality In The Labour Market," Journal of International Development, John Wiley & Sons, Ltd., vol. 24(7), pages 894-908, October.
    7. Rita Almeida & Reyes Aterido, 2015. "Investing in formal on-the-job training: are SMEs lagging much behind?," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-23, December.
    8. 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.
    9. Waheed, Abdul, 2011. "Size, competition, and innovative activities: a developing world perspective," MERIT Working Papers 052, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    10. 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.
    11. repec:wsi:ijitmx:v:14:y:2017:i:05:n:s0219877017500250 is not listed on IDEAS
    12. Dalton, Patricio & Rüschenpöhler, Julius & Zia, Bilal, 2018. "Determinants and Dynamics of Business Aspirations : Evidence from Small-scale Entrepreneurs in an Emerging Market," Discussion Paper 2018-009, Tilburg University, Center for Economic Research.
    13. Jairaj Gupta & Andros Gregoriou & Jerome Healy, 2015. "Forecasting bankruptcy for SMEs using hazard function: To what extent does size matter?," Review of Quantitative Finance and Accounting, Springer, vol. 45(4), pages 845-869, November.

    More about this item

    Keywords

    E-Business; Education for Development (superceded); Innovation; Labor Policies; Microfinance;

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship

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