Impact of Incubation on Innovative Firms

This paper measures the impact of incubation on new and innovative Uruguayan firms’performance. Technological innovation has a fundamental role in explaining economic growth and broader economic development. With this in mind, the fact that new and innovative firms face larger difficulties when trying to validate their innovations becomes a policy concern. One of the answers given to this problem is incubation, which attempts to place this particular sort of companies in a “secure” environment until they are able to survive on their own. The evaluation was restricted to firms housed at a particular incubator called Ingenio, which is one of the largest and oldest operating in Uruguay. It was carried out using a unique panel of data gathered from the incubator and through a survey of current and former incubatees and of rejected candidates. In order to control for potential correlation between the outcome and firms’ observed and unobserved traits a sharp regression discontinuity design was employed, exploiting the incubator’s selection process. Evidence showed timid support for the hypothesis that incubation has a positive impact on firms’ sales and employment, while no impact was detected on their exports. One of the possible explanations for the small impacts detected is that small sample size may have biased the estimates downwards. Therefore it can be affirmed that, at the very least, incubation did not hamper these companies’ performance.