The Determinants of Firm’s Innovation in Africa

Based on the data obtained from the World Bank’s enterprise survey for 9988 firms from 28 African countries, this study investigates the effect of firm characteristic, openness, and resource-based determinants of innovation. The investigation conducted on the overall sample firms and subgroups formed based on sector, size, and age. The result obtained from the baseline estimation and subgroup analysis commonly shows that firm size, openness (export intensity, competition, and foreign ownership), and resource-based determinants (access to credit, R&D, employees’ training, and gender of a top manager) mainly affects the firm’s probability to innovate. Our separate analysis of the subgroups of sampled firms provides the following additional interesting results. First, the effect of competition from the informal market decrease with the increase in firm size and become insignificant for large firms. Second, the proportion of firms have access to finance increase with firm size, but its effect on innovation decrease in the increase in firm size. Third, large firms invest more in R&D, but efficiency in the use of R&D expenditure tends for smaller firms than larger ones. Four, human capital is mostly relevant for young firms’ likelihood to innovate. The results obtained from the subgroup analysis provide evidence that the effect of firm characteristics, openness, and resource-based determinants varied across the subgroups of firms. This study emphasizes the relevance of considering endogeneity and firm’s heterogeneities in investigating the determinants of innovation.