Riding the Innovation Wave: Global Insights Into Firm Performance

Fostering innovation has become a central national strategy aiming at accelerating the transition to a knowledge-based economy. However, sustaining innovation activities requires strategic planning and resource allocation, posing significant challenges for firms. Without structured guidance and governmental support, many firms struggle to advance their innovation initiatives effectively. This study delves into the impact of national innovation systems (NIS) on firm performance, leveraging the fixed effect estimator on a dataset consisting of 16,228 firms in 50 countries. Our findings reveal a short-term inverse effect of NIS on firm performance, persisting for approximately 3 years. This effect is primarily driven by two innovation pillars: infrastructure and creative outputs, and is more pronounced in developing markets where government support for private innovation is comparably insufficient. The association can be explained via the rising innovation intensity channel with patent applications amplifying the effect. Our findings suggest policymakers should pay close attention to key innovation pillars and prudently consider the short-term consequences of innovation-boosting programs on firm performance, ensuring that national innovation strategies are designed to foster sustainable and inclusive economic growth. JEL Classifications: G30, O31.