Innovation Performance of Chilean SMEs: A Bivariate Probit Analysis

The purpose of this paper is to investigate the innovation activities of Chilean firms’ by using micro level data. Previous studies showed research gap related to micro level analysis of the Chilean SMEs. For the first time, multiple proxies have been used as dependent variables (product/process innovations and patent application/spending), which is neglected by the past studies. A micro level data has been obtained from the World Bank, Enterprise Survey on 696 Chilean SMEs. Bivariate probit estimation method has been used. Results: The results showed that SMEs are less likely to apply for patents and introduce product innovations. This outcome indicates that Chilean SMEs face resource constraint in terms of introducing product innovations and applying for patents. In addition, SMEs undertaking R&D and making network ties with other research institutions are more likely to introduce patents and product innovations. Similarly, SMEs that are engage in quality programs are more likely to spend on patents. Lastly, SMEs with public support for innovation activities positively influence the patent application. Findings imply that SMEs investment in knowledge based assets (e.g., R&D, networks and quality methods) accelerate their innovation output. Policy makers should not only provide financial incentives (R&D subsidies) to SMEs but also encourage their strong ties with research institutions for higher innovation output.