Size, competition, and innovative activities: a developing world perspective

The impact of size and competition on firm-level innovative activities has obtained considerable attention in developed countries, but the focus is still lacking in developing world. This paper is an attempt to contribute in this direction by including 14 Latin American countries, and by using Enterprise Survey data of the World Bank. We consider both input and output innovation to observe the influence of firm size and of market concentration on innovative activities, and to interrogate the differences in influences of innovation determinants in different size classes and competition statuses. Our analysis reveals that employment increases the likelihood of R&D and product innovation, and its influence on R&D expenditures is positive but at less than proportionate rate. We find that product market competition increases the probability of both R&D decision and innovation output, but it has no influence on R&D intensity. We observe no relationship between R&D expenditures per employee and product innovation. Country and industry differences also contribute substantially towards firm-level R&D activities and product innovation. Moreover, large or small firms do no tend to be advantageous for employment and competition in order to influence R&D activities; however, for product innovation, competition is a more significant stimulus for large firms compared to small ones. Our results suggest that firms’ R&D productivity is independent of size classes and competition environments. All of the determinants (of innovation) are jointly observed to have different effects, for large and small firms, as explanatory factors of both R&D intensity and product innovation, and for different competition environments only for product innovation. JEL classification: L11; L12; L13; O32