Innovation and firm performance in developing countries: The case of Pakistani textile and apparel manufacturers

By W. Wadho, A. Chaudhry. Research Policy, 2018

238 citations recorded by the source corpus.

Using unique innovation survey data collected from a homogenous sample of firms in Pakistan, this paper presents an analysis of the firm level determinants of product innovation and its impact on firm performance. We employ a multi-stage structural model linking the decision of a firm to innovate, its innovation investment, product innovation, and firm performance using primary data from the textile and wearing apparel sector, which is the largest export sector of Pakistan. We find that product innovation leads to increased labor productivity as well as higher labor productivity growth. A 10 percent increase in innovative sales per worker is associated with a greater than 10 percent increase in labor productivity and labor productivity growth. On the determinants of innovation, we find that vertical knowledge flows from foreign clients and suppliers are important determinants of a firm's decision to innovate. Larger firms are more likely to engage in innovation, however, there is no significant evidence that they invest more in innovation. Exporting is positively associated with innovation performance and firms exporting to Europe and America are more likely to engage in innovation. There is mixed evidence on the impact of competition: foreign competition adversely affects a firm’s decision to innovate, whereas, local competition increases investment in innovation. Subsidies seem to have a crowding out effect since firms receiving national subsides invest less in innovation. Furthermore, firms that have higher investment in innovation, that are more productive, and that introduce organizational innovations have higher innovative sales per worker.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/19f057a5d89e145fa5ab42af15f5bc494de5540c

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Citations in the corpus

Internationalization Orientation in SMEs: The Mediating Role of Technological Innovation (2019, methodology): “Many studies found a complementary between product and process innovation (Ballot et al. 2011; Miravete and Pernías, 2006; Wadho and Chaudhry, 2018) that leads to a greater firm performance.”
Service innovation implementation: a systematic review and research agenda (2020, unknown): “…that firms’ performance, financial or otherwise, is moderated by its ability to create and adopt innovative products, services, technologies, and processes (Dwyer & Mellor, 1993; Hombert & Matray, 2018; Koellinger, 2008; Singh, Chauhan, & Dhir, 2019; Sterlacchini, 1999; Wadho & Chaudhry, 2018).”
Effects of innovation strategies on export performance: New empirical evidence from developing market firms (2020, methodology): “Despite these limitations, this study makes several contributions to the innovation-performance literature, especially in the context of developing economies (e.g. Tekin and Hancıoğlu, 2017; Wadho and Chaudhry, 2018).”