Measuring and Explaining Innovative Capability: Evidence from Southeast Asia

Tomohiro Machikita and Yasushi Ueki

Asian Economic Policy Review, 2015, vol. 10, issue 1, 152-173

Abstract: type="main">

What causes firm-level product innovation in developing economies? This paper answers this question by emphasizing the role of process improvements that are influential in product innovation. We construct a firm-level innovative capability score using novel, broad-based, but detailed data on various process improvement practices obtained from firms in Southeast Asia. We then investigate the factors that may affect innovative capability. We also estimate the effect of the innovative capability score on product innovation controlling for research and development intensity and other firm characteristics. Our empirical investigation identifies a chief executive officer (CEO)'s past experience at a foreign or large firm, and buyer pressure to adopt international standards as key determinants of innovative capability. Novel and unique findings from our examination include: (i) the impact of a CEO's past experience at a foreign or large firm on the innovative capability is larger for local enterprises and small- and medium-sized enterprises; (ii) the impact of share of foreign workers in the upper managerial levels only appears to be significant in foreign firms and larger firms; and (iii) buyer pressure is a more likely contributor to innovative capability compared with capital tie-ups with multinational enterprises or joint venture buyers that capture vertical technology transfers. Finally, our empirical results show that a firm in Southeast Asia is more likely to achieve product innovation if the firm has had a higher innovative capability.

Date: 2015
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