Impact of firm-level innovation on productivity of manufacturing and service firms in Sub-Saharan Africa

Abstract

This study investigates the impact of firm-level research and innovation on the productivity of Sub-Saharan African firms in 2014–2018. This study utilizes World Bank Enterprise Surveys on 2,867 manufacturing and service firms conducted in SSA in 2018/ 19. Endogenous Switching Regression (ESR) was used as the primary estimation methodology. The results indicated that Research and Development spending positively and significantly impacts manufacturing firms’ productivity. In addition, service innovation has a positive and significant effect on the productivity of service firms. In contrast, product innovation is insignificant to manufacturing firms’ productivity. Lastly, process innovation is significant only to the manufacturing firms and not the service firms. These results suggest that Sub-Saharan African firms did not realize maximum innovation productivity gains during the study period. Nonetheless, the results imply that other than the conventional factor-driven production, Sub-Saharan African firms have the potential to drive their productivity through semi-endogenous firm-level innovation.