The Effect Of Innovation Input On Innovation Output And Firm Performance

Abstract

For developing countries like Ethiopia innovation is very important to implementing the design and modify a things from developed elsewhere. However, there is quite limited theoretical studies and empirical evidence in the countries regarding to the innovation. In addition, among Ethiopian firms there is a gap of understanding about the effect of innovation inputs on innovation outputs and firm performance. To fill this gap, the study proved empirical evidence about the effect of innovation inputs on innovation outputs and firm performance for Ethiopian firms. we used firm-level data from the World Bank enterprise survey data-set at the year of 2015; evidence from Ethiopian firm level data including 848 total firms from four regional states and two administrative cities, encompassing firms of all sizes. To effectively analyze the relationship between innovation inputs, innovation outputs, and firm performance, the CDM model was most appropriate and has been widely adopted by scholars for its ability to link innovation inputs with outputs and subsequent firm performance. The study used the General Structural Equation Modeling (GSEM) to estimate how innovation inputs affect innovation outputs and firm performance. The results show that innovation inputs such as spend expenditure on formal R&D activities, providing formal programs training for employees, use of E-mail to communicate with clients and suppliers have a positive and highly significant effect on technological innovation outputs (product and process innovation). On the other hand, spend expenditure on formal R&D activities, formal programs training for employees, use of E-mail to communicate with clients and suppliers ,and product and process innovation also exhibit a positive and significant effect on firm performance. Generally,innovation inputs have a positive and highly significant effect on innovation outputs and firm performance. Based on the findings, further emphasis on making conducive environment for innovation inputs would help Firms to enhance their innovation outputs and firm performance.