Innovations and firm-level efficiency: a comparative analysis between China and India
European Journal of Innovation Management
ISSN: 1460-1060
Article publication date: 31 March 2020
Issue publication date: 18 May 2021
Abstract
Purpose
This study examines the innovation-efficiency linkage for Indian and Chinese manufacturing and service firms.
Design/methodology/approach
We applied the stochastic production and cost frontier approach to determine the output and cost efficiency of the firms surveyed in World Bank enterprise surveys. We then used both unconditional and conditional propensity score matching (PSM) estimation techniques to examine the effects of innovation as well as R&D on output and cost efficiency of the firms surveyed.
Findings
The study results suggest that innovation-efficiency linkage varies between countries and sectors. Innovations significantly raise output and cost efficiency of Indian manufacturing firms, whereas innovations in Chinese manufacturing firms are cost-oriented and negatively affect output efficiency. For the service firms of both countries, innovations are significantly positively linked with output and cost efficiency. The study also suggests that R&D acts as a crucial moderator for innovation-efficiency linkage for Chinese manufacturing firms but not for Indian firms, and the interaction effects of innovations are not substantially higher in magnitude than their individual effects. Finally, conditional PSM results suggest knowledge spillover for effective innovations of Indian firms, whereas R&D is a must for substantial innovation-efficiency linkage in Chinese firms.
Originality/value
This study offers quite a few crucial policy decisions concerning the relationship between innovation and efficiency as well as the moderation effect of R&D on innovation-efficiency linkage. It concludes that the effects of innovation on firms' efficiency and the role of R&D as a moderator of the innovation-efficiency relationship differ between India and China across the manufacturing and service sectors.
Keywords
Acknowledgements
We would like to thank the chief editor and two anonymous reviewers of the journal for constructive comments on earlier versions of the paper. This research was not supported by any research grant.
Citation
Islam, M.M. and Fatema, F. (2021), "Innovations and firm-level efficiency: a comparative analysis between China and India", European Journal of Innovation Management, Vol. 24 No. 2, pp. 589-612. https://doi.org/10.1108/EJIM-10-2019-0306
Publisher
:Emerald Publishing Limited
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