Nguyen, Van ORCID: https://orcid.org/0000-0003-3147-1748 (2021) Innovation and productivity in Australian small and medium-sized enterprises: a sectoral analysis. PhD thesis, Victoria University.

Abstract

In the face of falling productivity and rising global competition, innovation has become a strategic focus of Australia’s economic and policy debate. Small and medium-sized enterprises (SMEs) constitute the vast majority of businesses in Australia, but they are typically innovation laggards. Thus, improving SMEs’ innovation performance is critical to boost the nation’s productivity. The literature has extensively examined innovation and productivity in large firms and the economy as a whole. However, little is known about innovation in SMEs in various economic sectors, aside from the manufacturing sector. Most available studies focus on technological innovation, neglecting non-technological innovation. There is also a dearth of sectoral studies that examine SMEs’ innovation and productivity relationship using longitudinal data. The present study bridges these gaps in the SME innovation and productivity literature. This study explores and quantifies the determinants and impact of SME innovation in three economic sectors, namely, primary, secondary (manufacturing) and service. Based on the renowned CDM framework, an econometric model is developed, linking (i) innovation determinants, (ii) innovation outputs and (iii) firm productivity. The study uses the Australian Bureau of Statistics microdata of 1,976 Australian SMEs during the period 2011–16. The random effects probit models and simultaneous estimation approach are employed to estimate innovation output and productivity equations as one system. This approach takes into account unobserved firm heterogeneity and endogeneity in the innovation process. Further, the use of longitudinal data yields novel and more robust estimates of the impact of innovation on SME productivity. The analysis is first conducted on the aggregate economy, followed by each economic sector. The results show significant differences in SME innovation performance across the three sectors. Innovation determinants, namely, training, collaboration, financial support, investment in information and communication technology (ICT) and innovation focus, are found to positively affect both types of innovation. Firm size, age, foreign ownership and exports, and market competition also influence some innovation outputs. The analysis further reveals a positive impact of both innovation outputs on SME productivity, with non-technological innovation showing a more significant effect than technological innovation. At the sectoral level, collaboration and innovation focus significantly influence both innovation outputs in all three sectors. However, the significance and effect of financial support, ICT and training vary across innovation types and sectors. The positive impact of firm size and the negative impact of firm age are significant in the primary and service sectors, but not in the secondary sector. Foreign ownership, exports and market competition also influence innovation outputs across sectors, but their effect also varies. The sectoral results reveal a positive relationship between innovation outputs and productivity of SMEs in all sectors. However, the impact of each innovation type, in terms of magnitude, varies across sectors. The thesis contributes to the literature by providing sectoral and panel data analysis of innovation and productivity in the SME case. The results confirm the sectoral patterns in innovation processes and further reveal significant differences across the three economic sectors in terms of their innovation determinants and the extent to which the two types of innovation impact productivity in SMEs. Technological innovation is found to have a greater impact on productivity of primary SMEs, while the impact of non-technological innovation is more pronounced in manufacturing SMEs. In services, the effect of technological and non-technological innovation is relatively comparable. At the aggregate level, non-technological innovation is a stronger driver of productivity improvement in SMEs rather than technological innovation. This finding is important given that non-technological innovation has largely been overlooked, especially in the SME literature. The study also makes an important contribution to the Australian literature by providing a comprehensive analysis of the two stages of SME’s innovation process using panel data estimations. It further offers benchmarking and comparisons of the innovation and productivity performance across all three economic sectors, which has not been done in previous Australian research. Given the current low performance in innovation and productivity in Australia, the thesis provides important implications for policies. The findings offer additional empirical insights into various factors that significantly affect innovation and productivity in the three economic sectors, which serves as a catalyst for policy development to improve Australian SMEs’ performance in innovation and productivity.

Search Google Scholar

Repository staff login