Innovation And Productivity In Kenya’s Manufacturing Firms

Abstract

In recent times, technological change and innovations have proven to be major economic growth engines. Given the changing needs of customers and pursuit of sustainable productivity growth, creative inventions and innovations are the most important components of firm survival and economic growth. A renewed emphasis is laid on attaining quality innovations that will consequently boost productivity. Kenya’s economic blue print, Vision 2030, envisages highly industrialised economy in order to attain high economic growth rates. This is only possible if productivity is boosted to not only enable the firms compete favourably in the global value chain but also to generate quality employment within the economy. An important element to improving productivity is to increase innovation activities at firm level. This study’s main objective was to determine the nature of the innovation –productivity link in Kenya’s manufacturing sector. Specifically, it examined the determinants of innovative efforts and the impact of innovation activities on labour productivity of a firm. The study linked innovation and productivity through a structural framework that enabled innovation inputs (knowledge capital investment) be associated with innovation output, finally innovation output with productivity. A cross-sectional data at firm-level was used from the Enterprise survey (2018) done by the World Bank. Ordinary Least Squares estimation method was employed for the analysis of the study’s two objectives. Results indicate that firm’s size, export status and access to finance are determinants of innovation input (knowledge capital investment). Process innovation and product innovation were found to have no significant impact on a firm’s productivity. Policy implications drawn from the findings is that firms should endeavour to improve the quality of their products and processes to meet the ever changing customer needs and compete favourably in the global market. Collaboration with academic institutions and private research institutions is important for diffusion of information on innovations. Relatively younger firms face cost setback for innovative activities, it is therefore crucial that the government offer support programs that will ease individual finance burden of investing in knowledge capital. The support program may be in form of subsidies granted to firms with high quality but costly projects.