What influences innovation?: An empirical analysis on the role of institutional and regulatory constraints on technological innovation of firms in selected ASEAN economies

• Main Authors: Baybayon, Geliann Beatrice C., Chan, Aileen Jose A., Deron, Nasher Ysmael P., Oliveros, Andrea Marielle P.
• Format: text
• Language: English
• Published: Animo Repository 2021
• Subjects: Technological innovations > Southeast Asia; Economics
• Online Access: https://animorepository.dlsu.edu.ph/etdb_econ/4; https://animorepository.dlsu.edu.ph/cgi/viewcontent.cgi?article=1006&context=etdb_econ
• Institution: De La Salle University

The decision of firms to innovate is influenced not only by their capacity to do so but also by the governing rules and regulations present in the business environment. Firms may or may not be hindered to pursue innovation when faced with such constraints depending on the informal transactions and agreements present between bureaucrats and firms. Building on existing literature, this study aims to determine whether institutional and regulatory constraints hinder or facilitate the technological innovation of firms. A probit regression model is employed to examine if firms innovate when interacting with their firm characteristics and the bureaucratic obstacles and practices found in their business environments. This study utilizes cross-sectional firm-level data from the 2015 World Bank Enterprise Survey for Indonesia, Malaysia, Philippines, and Vietnam. Across all countries, it was found that large firms are more likely to undergo both product and process innovation while their smaller counterparts are less likely to innovate. On the other hand, while institutional and regulatory constraints are perceived as obstacles to a firm's operations, it does not necessarily halt the likelihood of innovative activity. To hasten such lengthy procedures, firms partake in informal payments that were found to be deterrents of product innovation at the ASEAN level. However, perception of corruption as an obstacle was found to increase the chances of firms to innovate in both cross- and country-level analyses. Overall, corruption was found to be an intriguing behavioral aspect as a cultural norm in the business environment. Although corruption may hamper a firm’s innovative activity to some extent, this does not bar them from engaging in both product and process innovation.