Innovation and firm-performance correlations: The case of central and South Eastern Europe Countries

Abstract

The aim of this paper is to investigate the determinants of innovation activities and their impact on firm performance. For the empirical analysis of the study we employ Business Environment Enterprise Performance Surveys (BEEPS) firm-level data. To examine the relationship between innovation activities and firm performance we apply instrumental variable (IV) technique, which enables us to control for the endogeneity between innovation activities undertaken by entrepreneurial businesses and their performance. Our findings suggest that enterprises’ size, R&D intensity, competition, skilled workers and export activity have positive and significant impact on their incentive to undertake innovation activities. Considering the determinants of productivity, we find evidence that enterprises that have undertaken innovation activities (instrumented variable) and having higher degree of skilled workers and that are European Union member country enterprises perform better.