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Regional institutional quality and firm-level innovation: a case of selected south asian economies

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Abstract

Using rich micro-level data on manufacturing firms in four South Asian economies, this paper examines how regional institutional quality (RIQ) influences the relationship between firm-level resources and technological innovation outputs. Our research hypothesis postulates that the impact of firm-level resources on innovation is moderated by the institutional environment within which the firm operates. To test our research hypothesis, a clustered robust standard errors logistic model is used, while the multi-level estimation technique is used for robustness analysis. Findings conclude that how much a firm can extract value from the firm-level resources to produce innovative products is dependent on the institutional quality, not only on the national level but regional level as well. Moreover, the internal R&D, employees education, and skilled labor force have positive impact on the product innovation when they interact with the regional institutional quality. The results have applied implications for policymakers in the area of regional-level governance and innovation.

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Data availability

The data and material that support the findings of this study are available from the corresponding author upon reasonable request.

Notes

  1. We converted managerial experience into a dummy variable by using threshold of 10 years. It implies that a manager will be considered as experienced if he/she has more than 10 years of experience. This number is taken by following existing literature (Barasa et al. 2017).

  2. In terms of size, the World Bank Enterprise Survey divided the firms into three categories: 1) small or micro-sized firms (having 0 to <  = 19 permanent employees), 2) medium-sized firms (having >  = 20 to <  = 99 permanent employees), and 3) large-sized firms (having >  = 100 permanent employees). A bulk of empirical literature (Jiménez & Sanz, 2011; Ayyagari et al., 2012; Younas & Rehman, 2021) report that the medium and large firms are more likely to innovate. Taking inspiration from these studies and following world bank description, we use 20 permanent employees as a threshold to construct the dummy variable of firm size. Firms with less than 20 employees are categorized as small and micro enterprises in the World Bank Enterprise Survey. Firms with more than 20 employees fall in a continuum of medium to large-sized firms.

  3. Meaningful methodology means it provides graphical interpretation of the interaction effects which is numerically difficult to interpret.

  4. The output from the margins command can be very difficult to read. It can be like looking at a 5-dimensional crosstab where none of the variables have value labels. The “marginsplot” command introduced in Stata 14 makes it easy to create a visual display of results.

  5. Check appendix for detailed results of marginal effects. We report marginal effects for firm-level resources and skilled labour/formal training only because we do not find significant coefficients of the impact of managerial experience and employees' education level on product innovation.

  6. There is no marginal effects plot for managerial experience due to insignificant interaction term.

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    Muhammad Zeeshan Younas

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Appendix

Appendix

Tables 8 and 9.

Table 8 Marginal effects for firm-level resources. Predictive margins NUMBER of obs = 5,634; Model VCE: Robust; Expression: Pr(product), predict()
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Table 9 Marginal Effects for Skilled Labor/Formal Training. Predictive margins; Number of obs = 5,634; Model VCE: Robust; Expression: Pr(product), predict()
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Younas, M.Z. Regional institutional quality and firm-level innovation: a case of selected south asian economies. Qual Quant 57, 615–643 (2023). https://doi.org/10.1007/s11135-022-01381-1

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