Determinants of Innovation Activity of Small and Medium Sized Enterprises in Small Post-Soviet Countries

Abstract

This paper aims to study the determinants of innovation activity of small and medium-sized enterprises in five small post-Soviet countries. Empirical analysis is based on the data from the fifth wave of the Business Environment and Enterprise Performance Survey. Innovation of SMEs is measured with five innovation practices. For each aspect of innovation probit model is applied. Estimation results shows that experience of managers has curvilinear effect on the innovation in SMEs. Moreover, foreign participation, export orientation and competitiveness in sectors are indicated as important condition for innovation by SMEs. Competition forces firms to innovate in order to survive, while openness of the economy provides with exporting opportunities and participation of the foreign capital. Especially the latter factor may significantly reduce costs of innovation through technological transformation from abroad.