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Determinants of Firm Innovation in Indonesia: The Role of Institutions and Access to Finance

Author

Listed:
  • Edo Mahendra
  • Ubaidillah Zuhdi
  • Ratnawati Muyanto

    (Depart. of International Development, Univ. of Oxford, United Kingdom & School of Government and Public Policy, Indonesia. Faculty of Management and Economics, Gdansk University of Technology, Poland. International Labour Organization, Country Office Indonesia)

Abstract

This paper investigates the determinants of firm innovation in Indonesia. Using quality of local regulations index constructed by the Indonesia’s Regional Autonomy Watch (KPPOD) as measure of institutions, We found that better institutional quality at the local level was associated with more innovation and that firms experiencing major obstacle in access to finance were less likely to innovate. Access to finance is more critical for small and medium enterprises (SMEs) whereas institutional quality is more important for large firms. The positive impact of better institutions on innovation is asymmetrically distributed. Better local institutional quality disproportionately benefited non-constrained firms.

Suggested Citation

  • Edo Mahendra & Ubaidillah Zuhdi & Ratnawati Muyanto, 2015. "Determinants of Firm Innovation in Indonesia: The Role of Institutions and Access to Finance," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 61, pages 149-179, December.
    • Handle: RePEc:lpe:efijnl:201512
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    References listed on IDEAS

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    3. Ayyagari, Meghana & Demirgüç-Kunt, Asli & Maksimovic, Vojislav, 2011. "Firm Innovation in Emerging Markets: The Role of Finance, Governance, and Competition," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 46(6), pages 1545-1580, December.
    4. Ann Bartel & Casey Ichniowski & Kathryn Shaw, 2007. "How Does Information Technology Affect Productivity? Plant-Level Comparisons of Product Innovation, Process Improvement, and Worker Skills," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(4), pages 1721-1758.
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    6. Luca Anderlini & Leonardo Felli & Giovanni Immordino & Alessandro Riboni, 2013. "Legal Institutions, Innovation, And Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 54, pages 937-956, August.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Megersa Debela Daksa & Molla Alemayehu Yismaw & Sisay Diriba Lemessa & Shemelis Kebede Hundie, 2018. "Enterprise innovation in developing countries: an evidence from Ethiopia," Journal of Innovation and Entrepreneurship, Springer, vol. 7(1), pages 1-19, December.
    2. Edy Dwi Kurniati & Indah Susilowati & Suharno, 2019. "Sustainable Competitive Advantage of SMEs through Resource and Institutional-Based Management: An Empirical Study of Batik SMEs in Central Java, Indonesia," Tržište/Market, Faculty of Economics and Business, University of Zagreb, vol. 31(1), pages 61-82.
    3. Joao Estevao, 2022. "An Analysis of the Impact of the 2030 Agreement on R&D Intensity in the Energy Sector," International Journal of Energy Economics and Policy, Econjournals, vol. 12(4), pages 204-216, July.
    4. Alam, Ashraful & Uddin, Moshfique & Yazdifar, Hassan, 2019. "Institutional determinants of R&D investment: Evidence from emerging markets," Technological Forecasting and Social Change, Elsevier, vol. 138(C), pages 34-44.
    5. Danta, Subal & Rath, Badri Narayan, 2024. "Do institutional quality and human capital matter for innovation in case of Asian region?," Innovation and Green Development, Elsevier, vol. 3(3).
    6. Zhang, Min & Rodríguez-Pose, Andrés, 2024. "Government reform and innovation performance in China," LSE Research Online Documents on Economics 122728, London School of Economics and Political Science, LSE Library.

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    More about this item

    Keywords

    Access to Finance; Firm Innovation; Innovation Determinants; Innovation Gap Institutions;
    All these keywords.

    JEL classification:

    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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