INNOVATION AND GROWTH OF FIRMS IN EAST AFRICA
Date
2018-08-22
Authors
NALUWOOZA, PATRICIA
Journal Title
Journal ISSN
Volume Title
Publisher
Makerere University
Abstract
Empirical evidence has shown that innovation is a major determinant of firm growth in
developed and developing countries. However, little is known about the impact of innovation
on firm growth in LICs like those in the East African region. This study attempts to fill this
gap in the literature using a modified Crepon-Duguet-Mairesse (CDM) structure model to
analyze data from the World Bank Enterprise Survey of 2754 firms in Burundi, Kenya,
Rwanda, Tanzania and Uganda. The study examines the role of product and process
innovation in explaining firm growth. Furthermore, it investigates how innovation interacts
with firm-level resources to explain firm growth in East Africa. Proxies for firm growth used
are sales, employment and productivity growth. We hypothesize that product and process
innovation positively and independently affect firm growth and also exhibit complementarity
effects. In addition, we hypothesize that innovation moderates the effect of firm-level
resources on firm growth. The set hypotheses are tested using a Two Stage Least Squares
estimation strategy.
Overall, the results suggest that product and process innovation positively and significantly
affect the three proxies of firm growth. The results also reveal evidence of complementarity
effects of product and process innovation on sales, employment and productivity growth. In
addition, results show that product and process innovation positively moderate the effect of
firm-level resources on firm growth.
Description
Keywords
Product innovation , process innovation , firm growth , East Africa