Influence of Regional-Level Institutional Factors on Firm-Level Innovation in an Emerging Economy - India
Creators: name: Yadati Narasimhulu, Supriya
Publisher: name: Université d'Ottawa / University of Ottawa
Year: 2020
Subjects: India
innovation
institutional
regional
firm
world bank
enterprise survey
emerging economy
product innovation
logistic regression
multi-level
mixed-effects logistic regression

description: This thesis examines how regional-level factors combined with firm-level factors influence innovation in an emerging economy – India. Past literature has shown that differences in both country contexts and firm-level factors influence innovation. The bulk of this literature tended to focus on developed economies. The handful of studies that have considered contextual differences have studied these at the country-level or within regional blocks such as regions of Europe or Africa. There is a paucity of research, which investigates how differences in state-level factors within a single country combined with firm-level factors influence innovation within firms. Therefore, it is an open question whether the findings derived from developed economies and country-level studies apply equally to emerging economies, particularly at the state level within a single country. Thus, there is a gap in the literature regarding our understanding of the impact of combined state- and firm-level factors on innovation within a single country. This thesis aims to contribute to a better understanding of how state and firm-level factors drive innovation in India, an emerging economy. India is selected because it is a fast-growing emerging economy that is increasingly being integrated into the globalized world economy and thus understanding how these factors influence innovation in an emerging economy would complement the literature that focuses on developed countries. Moreover, India is a huge country with substantial varieties in resources, capabilities, institutions (both formal and informal institutions) as well as ethnic, religious, and cultural varieties. Contextually, these state-level differences are quite different from regions in the developed world where institutional differences tend to be relatively consistent (less varieties). Thus, the insights generated from this study of the Indian context complement prior research by identifying the state and firm factors that combine to drive firm-level innovation. This study also extends the innovation literature by focussing on state-level differences within a single emerging economy, for which there is limited research. The findings could also have practical managerial and policy implications. From a policy perspective, policymakers in India can get a deeper understanding of the relevant factors that influence firm-level innovation so that they can direct policy and resources to promote innovation in their respective states. From a managerial perspective, managers can also get a better understanding of strategies and investments they should take to enhance innovation within their firms. This study is based on data gathered from various sources including the World Bank Enterprise Survey and several sources from within India (Indiastat.com, NCAER State Investment Potential Index, India Innovation Index). The World Bank Enterprise Survey provides firm-level data while state-level data were obtained from the other reputable sources in India. The data were analyzed using logistic regression and multi-level modeling, given that firms are nested within states, thus, we can simultaneously model the micro and macro levels to assess the relevance of the regional context. The results of this study show that regional factors such as regulatory quality, corruption, and rule of law barriers negatively influence innovation in firms that invest in internal R&amp;D to promote innovation. The results also show that regions that devote a higher proportion of their gross domestic product to innovation achieve higher levels of innovation. Further, regions that have higher levels of human capital stock (more skilled workers) and export technology tend to be more innovative. At the firm level, investments in both internal and external R&amp;D and those that have highly experienced managers are more innovative than their peers. These results suggest that governments and policymakers can increase innovative activities of firms by providing a highly skilled labor force, invest heavily in R&amp;D, reduce corruption, regulatory quality, and the rule of law barriers. For firm-level managers, this study indicates that higher levels of managerial capability and greater investments in both internal and external R&amp;D can enhance the technical and innovative capabilities (absorptive capacity) of their firms. This may result in a competitive advantage through increased innovation.