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Does the cost of energy matter for innovation? The effects of energy prices on SME innovation in Sub-Saharan Africa

Javed Hussain (Business School, Birmingham City University, Birmingham, UK)
Amin Karimu (Department of Economics, University of Cape Town, Cape Town, South Africa)
Samuel Salia (Finance and Accounting, Faculty of Business and Law, De Montfort University, Leicester, UK)
Robyn Owen (CEEDR, Middlesex University, London, UK)

International Journal of Entrepreneurial Behavior & Research

ISSN: 1355-2554

Article publication date: 8 February 2022

Issue publication date: 1 March 2022

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Abstract

Purpose

Energy and environment has gained traction within the field of entrepreneurship literature, but a comprehensive empirical study that examines the relationship between the cost of energy and small- and medium-sized enterprise (SME) innovation is an omission. Therefore, this novel study aims to examine the relationship between the cost of energy and SMEs innovation in Sub-Saharan Africa (SSA) by first examining the differential impact of the various generation sources on the price of electric energy. This research has enabled us to investigate and understand the transmission mechanism of increasing/decreasing electricity price on innovation decisions and activities of SMEs in SSA.

Design/methodology/approach

Using quantitative approach, with the data from the World Bank Enterprise and Innovation Follow-up Surveys, the study utilises a Tobit model to test whether the generation mix (renewable and non-renewable generation sources) increases or decreases electricity prices and examine the impact of the cost of electric energy on SMEs innovation in SSA.

Findings

The findings of this study shows that the cost of electricity affects negatively on SMEs innovation decision and activities of SMEs in SSA. The impact of renewables on the price of electricity has a larger magnitude relative to that of non-renewables. This finding has implications for policy makers promoting renewable energy without a policy design to tackle the unintended price effect of promoting renewable energy.

Originality/value

This is the first study to introduce cost of energy into an innovation model and to empirically examine the role of cost of energy for innovation activities of SMEs in SSA. Further, it examines the sources of generation on electricity price in SSA. The study contributes towards the empirical literature, and the findings also have implication for policy makers regarding the unintended consequences of promoting the transition to low-carbon electricity generation sources on SMEs via the cost of doing business implication.

Keywords

Acknowledgements

Funding: The authors declare that there is no funding received for this work.

Competing interest: The authors declare that there is no competing interest.

Availability of data and material: Raw data were generated at https://www.enterprisesurveys.org/en/enterprisesurveys. Derived data supporting the findings of this study are available from the corresponding author [S.S] on request.

Code availability: The data codes are available from the corresponding author on request.

Citation

Hussain, J., Karimu, A., Salia, S. and Owen, R. (2022), "Does the cost of energy matter for innovation? The effects of energy prices on SME innovation in Sub-Saharan Africa", International Journal of Entrepreneurial Behavior & Research, Vol. 28 No. 2, pp. 548-566. https://doi.org/10.1108/IJEBR-10-2021-0855

Publisher

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Emerald Publishing Limited

Copyright © 2022, Emerald Publishing Limited

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