Differences in innovation relationships between Central and Eastern Europe and Western Europe: Evidence from CIS 2014

The existence of complementarity between different types of innovations is important in the decision to continue innovating in terms of absorbed synergies and capacities generated by the firm and through economies of scale to have positive effect over increasing productivity. In this paper we explore the complementarity and substitutability relationships between different innovation activities by utilizing cross-sectional data taken from the Community Innovation Survey - CIS2014 for two groups of countries: Central and Eastern Europe (CEE - Bulgaria, Croatia, Hungary, Romania, and Slovakia) and Western European countries (WE - Greece, Spain, Norway and Portugal). We analyze the interactions between four different types of innovation: 1) firm innovation, 2) market innovation, 3) organizational innovation, and 4) process innovation with data from the period 2012-2014. The results indicate that all types of innovation have statistically significant and positive impact on the productivity in the companies operating in both, Central and Eastern European and Western European markets. However, our findings suggest that the relations between different innovation pairs have a substitute nature. We rationalize our results by conducting a robustness analysis for each country separately and we discovered a wide range of different complementary relationships. These relationships are dependent on the underlying country that is subject of the analysis.