Productivity and innovation in small and medium enterprises

Abstract

Innovation is a key component of the competitive advantages of enterprises. The purpose of this paper is to test whether investment in innovation affects the productivity of small and medium-sized enterprises. The innovation-competitiveness relationship was studied in a large sample of companies in Mexico. A regression analysis was applied in two stages to avoid inconsistent estimators. First, the determinants of innovation were established, and then the impact of innovation on productivity was estimated. A positive link was found between innovation and productivity in various manufacturing and non-manufacturing sectors. The calculated impact of innovation on productivity is equivalent to the effect of investment in computer equipment.