Impact of innovation on productivity growth of SMEs in a factor-driven economy

Charbel Salloum (), Nikita Baklanov, Kent Wickstrøm Jensen, Jan Vang Brambini Pedersen and Matteo Rossi
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Charbel Salloum: Métis Lab EM Normandie - EM Normandie - École de Management de Normandie = EM Normandie Business School
Nikita Baklanov: UCPH - University of Copenhagen = Københavns Universitet
Kent Wickstrøm Jensen: SDU - University of Southern Denmark
Jan Vang Brambini Pedersen: SDU - University of Southern Denmark
Matteo Rossi: POLIMI - Politecnico di Milano [Milan]

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Abstract: This study explores the relationship between various types of innovation and productivity growth in small and medium-sized enterprises (SMEs) within Vietnam, a factor-driven economy. Utilising a longitudinal dataset from three surveys of 3,550 Vietnamese manufacturing SMEs, the study employs regression analysis to account for dual causality between innovation and factor productivity growth. The results reveal that process innovation leads to greater productivity gains compared to product modification and product innovation strategies. The findings underscore the importance of process innovation in enhancing productivity in factor-driven economies, where firms primarily exploit unskilled labour and natural resources. The study also highlights the need for policymakers to tailor innovation support strategies to the unique contexts of factor-driven economies, emphasising process innovations that leverage existing factor endowments. The research contributes to the limited literature on innovation in the lowest stages of economic development and provides practical insights for promoting sustainable economic growth in developing countries.

Keywords: Innovation; Factor productivity growth; Developing countries; Factor-driven economies (search for similar items in EconPapers)
Date: 2025
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Published in International Journal of Entrepreneurship and Small Business, In press, ⟨10.1504/IJESB.2026.10066650⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04981577

DOI: 10.1504/IJESB.2026.10066650

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