Interactive learning-driven innovation within production chains in developing economies

This paper presents a simple framework of the innovations that result from interfirm learning through exchanges of engineers in upstream-downstream relations within a production chain. To examine the framework, we empirically investigate the impact of mutual knowledge exchanges on product and process innovation using a survey of firm's self-reporting customer and supplier data in Indonesia, the Philippines, Thailand and Vietnam. Evidence from interconnected firms within a production chain suggests that firms with mutual exchanges between engineers and customers achieved product innovations with new technologies and new markets. However, this is not true for simple improvement of products or process innovation. Mutual exchanges with engineers between producers and suppliers within a chain can be expected to play an important role in the case of costly innovation and in situations unknown to the firms.