Determinants of Firm Innovation in Indonesia: The Role of Institutions and Access to Finance

Edo Mahendra (), Ubaidillah Zuhdi () and Ratnawati Muyanto ()
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Ratnawati Muyanto: Depart. of International Development, Univ. of Oxford, United Kingdom & School of Government and Public Policy, Indonesia. Faculty of Management and Economics, Gdansk University of Technology, Poland. International Labour Organization, Country Office Indonesia

Economics and Finance in Indonesia, 2015, vol. 61, 149-179

Abstract: This paper investigates the determinants of firm innovation in Indonesia. Using quality of local regulations index constructed by the Indonesia’s Regional Autonomy Watch (KPPOD) as measure of institutions, We found that better institutional quality at the local level was associated with more innovation and that firms experiencing major obstacle in access to finance were less likely to innovate. Access to finance is more critical for small and medium enterprises (SMEs) whereas institutional quality is more important for large firms. The positive impact of better institutions on innovation is asymmetrically distributed. Better local institutional quality disproportionately benefited non-constrained firms.

Keywords: Access to Finance; Firm Innovation; Innovation Determinants; Innovation Gap Institutions (search for similar items in EconPapers)
JEL-codes: G38 O38 O53 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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