How do firms combine different types of innovation? A multivariate probit approach

Abstract

When previous studies relate innovation behaviours to firm heterogeneity, they consider mainly product and process innovations. In this paper, we consider a wider range of types of innovation that firms could combine to form different innovation strategies. Using the multivariate probit model, we analyze the selection of heterogeneous firms into different innovation strategies. This model allows the joint modelling of the correlated innovation choices and, in addition, dispels any judgemental prescription of firms’ innovation behaviours. In the work, we contribute to the debate on the complementarity/substitutability relationships between types of innovation. Our results show that different characteristics of the firm influence the innovation strategies of the firm and that firms prefer to complement innovations rather than substitute them, but heterogeneities were observed. We recommend the inclusion of all innovation types available to the firm in the analysis of firms’ innovation behaviours in order to obtain a complete description. Furthermore, as our sample covers 13 countries in sub-Saharan Africa, we are the first to provide a snapshot of innovation behaviours of firms operating in Africa and, in addition, show that there are no inter-country differences in innovation tendencies of firms in the region.

Keywords:

• innovation strategies
• innovation choices
• multivariate probit
• sub-Saharan Africa
• complementary innovations
• substitutive innovations

ORCID

George Abuchi Agwu http://orcid.org/0000-0003-3022-5879

Nkechinyere Uwajumogu http://orcid.org/0000-0001-6835-6319

Notes

1 In order to conserve space, these coefficients are not reported, but they are available from the authors on request.

2 When these expressions are worked out, they give rise to 0 or 1 indicator variables to which probit regressions were applied conditioning on firm characteristics.

3 ISO stands for international standard organisation. Many studies have shown that obtaining this certificate changes the firm’s behaviour in many aspects (see Oseni and Pollitt 2015).