Is innovation activity persistent among small firms in developing countries? Evidence from Vietnam

Using firm-level panel data collected in Vietnam biannually from 2005 to 2013, this paper examines whether innovation is persistent among small firms in Vietnam. The empirical results obtained from dynamic random effect probit show some evidence of innovation persistence among these small firms. In accordance with literature, not all types of innovation show a persistent pattern. While the upgrading the existing products is state dependent, introducing new products and updating the existing production procedure did not persist. Our estimation results also show slightly different roles of human capital of firm’s owner and employees in innovation activities. While the owner’s human capital is associated with creating a new product, employees’ human capital is positively correlated with upgrading the existing products or production procedure. However, we do not find evidence on the roles of unobserved heterogeneity in explaining this persistence. Our results are consistent with results found in the literature for firms in developed economies.