Optimal conditions for innovation: firm-level evidence from Kenya and Uganda
It is well known that innovation is the key driver of economic growth and prosperity. Despite the expansive literature on the determinants of innovation within many Western countries, few studies have investigated the optimal conditions for innovation within emerging economies, especially countries in sub-Saharan Africa. In this study, I analyze firm-level data from Kenya and Uganda to deliver insights and practical recommendations for both firms and policymakers on the topic of innovation. I construct an index of innovation based on 9 assessments related to new or significantly improved products and practices within firms, and measure 8 general theories of innovation using the index - financial investment, human capital, economies of scale, technology, competition, external infrastructure, organizational structure, and corruption. Employing a generalized linear model framework, I find strong evidence for financial and human capital theories in both countries. In particular, two long-term investments - purchasing fixed assets and providing a training program for full-time employees - are both very significant determinants of innovation in both countries. In addition to the main model, I provide supplementary analy- ses into questions regarding mobile money, infrastructural challenges, and location in order to further investigate my results.