Front-end Innovation and Top Income Inequality: Evidence from Emerging Markets

Nwakego Eyisi (), Hyacinth E. Ichoku () and Asma Kanwal ()
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Nwakego Eyisi: University of Nigeria
Hyacinth E. Ichoku: Veritas University
Asma Kanwal: University of Management and Technology

Journal of the Knowledge Economy, 2024, vol. 15, issue 1, No 58, 1437-1481

Abstract: Abstract We contribute to the literature on income inequality, by extending existing models to examine the effect of front-end innovation (FEI) on top income inequality. We use a fixed effect panel regression, on annual country-level data for twenty-four emerging markets, over twenty-four (1995–2018) years, and find an insignificant correlation between income inequality and FEI. The instrumental variable estimates, however, show a significant association between measures of FEI and top income shares. Furthermore, we confirm that FEI is weakly related to broad measures of income inequality. Our instrumentation strategy and robustness checks suggest that this correlation partly reflects a causality, from FEI to top income inequality. Finally, we reveal that FEI is necessary for the survival of new ventures, in the crucial early years. Overall, our findings confirm that that; a) sectors that scale slowly because institutions are a substantial barrier for FEI and, b) sectors that rely solely on the most skilled front-end innovators to access credit, significantly expand top entrepreneurial income share across emerging markets.

Keywords: Front-end innovation; Top income inequality; Small firm finance; Value-added; Emerging markets; Technological progress (search for similar items in EconPapers)
JEL-codes: D63 L26 O31 O33 O34 O47 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s13132-023-01105-2

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