A multilevel analysis of innovation in developing countries

Innovation is a multilevel phenomenon. Not only characteristics of firms but also the environment within which firms operate matter. Although this has been recognized in the literature for a long time, a quantitative test that explicitly considers the hypothesis that framework conditions affect innovativeness of firms has been lacking. Using a large sample of firms from many developing countries, we estimate a multilevel model of innovation that integrates explanatory factors at different levels of the analysis. Apart from various firm’s characteristics, national economic, technological and institutional conditions are demonstrated to directly predict the likelihood of firms to innovate.