| Abstract: |
Innovation is key to technology adoption and creation, and to explaining the
vast differences in productivity across and within countries. Despite the
central role of the entrepreneur in the innovation process, data limitations
have restricted standard analysis of the determinants of innovation to
consideration of the role of firm characteristics. The authors develop a model
of innovation that incorporates the role of both owner and firm
characteristics, and use this to determine how product, process, marketing,
and organizational innovations should vary with firm size and competition.
They then use a new, large, representative survey from Sri Lanka to test this
model and to examine whether and how owner characteristics matter for
innovation. The survey also allows analysis of the incidence of innovation in
micro and small firms, which have traditionally been overlooked in the study
of innovation, despite these firms comprising the majority of firms in
developing countries. The analysis finds that more than one-quarter of the
microenterprises are engaging in innovation, with marketing innovations the
most common. As predicted by the model, firm size has a stronger positive
effect, and competition a stronger negative effect, on process and
organizational innovations than on product innovations. Owner ability,
personality traits, and ethnicity have a significant and substantial impact on
the likelihood of a firm innovating, confirming the importance of the
entrepreneur in the innovation process. |