Factors Affecting Innovativeness of Ethiopian Firms

What is it about?

The importance of firm innovation both for the growth of the firm and the economy as a whole has long been acknowledged by economists. The present study concentrates on answering following questions: (i) Do firm specific factors such as size, age, ownership etc. predict the propensity of firms to engage in innovative activities in Ethiopia? (ii) Do firm’s external factors, namely, access to finance and competition, significantly predict the propensity of firms to engage in innovative activities in Ethiopia? The data source of the paper is a survey conducted by World Bank in 2015 on Ethiopian firms.

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Why is it important?

In recent years, Ethiopia has experienced a substantial economic growth averaging 10.3% a year, compared to a regional average of 5.4%, which has attracted attention from around the world. High growth rates helped pull millions of Ethiopians out of poverty, and the share of the population living below the national poverty line decreased to 24% in 2016. However, the country has not succeeded in enhancing innovation capabilities of the firms in the economy. Innovativeness of Ethiopian firms is still well below the firms of other African countries with similar levels of income. In this regard, examining the impediments to firms in their quest for innovation and identifying what the country can do to encourage innovation is thus of particular interest. Despite its importance, the issue of innovativeness of Ethiopian firms has received scant academic attention. This increases the significance of our study, as it deals with one of the most pressing but least examined issues of the country – attaining middle-income status by 2025. Moreover, the results of this study provide additional evidence to innovation literature investigating the factors associated with innovativeness of firms from a relatively unexamined geographical region.