Artificial Intelligence Capital and Business Innovation

Nick Drydakis ()
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Nick Drydakis: Anglia Ruskin University

No 18476, IZA Discussion Papers from IZA Network @ LISER

Abstract: This study examines whether AI Capital, defined as AI-related knowledge, skills and capabilities, is associated with business innovation among SMEs in England. Using a two-wave longitudinal panel dataset comprising 504 observations from SMEs collected in 2024 and 2025, the study develops and validates a 45-item AI Capital of Business scale. Business innovation is measured across five dimensions: product and service innovation, process innovation, technology adoption, market and customer engagement, and organisational culture and strategy. Regression models, including pooled OLS, Random Effects, and Fixed Effects specifications, are employed. The findings reveal a robust positive association between AI Capital and business innovation across all model specifications. This association holds across all business innovation dimensions and remains consistent for SMEs with differing levels of financial performance, size, and operational maturity. Each component of AI Capital independently exhibits a positive association with business innovation outcomes.

Keywords: artificial intelligence; artificial intelligence capital; business innovation; innovation; SMEs (search for similar items in EconPapers)
JEL-codes: D83 J24 L25 L26 M15 O14 O31 O32 O33 O39 (search for similar items in EconPapers)
Date: 2026-03
New Economics Papers: this item is included in nep-ain, nep-cse, nep-ent, nep-lma and nep-sbm
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