The Impact of Externalities on the Innovation Activity of Russian Firms

Abstract

In this paper, we analyze the impact of externalities on firms’ capacity to develop and implement innovations. We evaluate a Probit model containing both firm level factors and regional factors, such as the institutional environment, state support, and human capital. The dependent variable is a dummy variable reflecting the involvement of a firm in innovation activity. We employ data provided by BEEPS 2012-2014 for firm-level indicators and data provided by the Russian Federal State Statistics Service for region level indicators. The results confirm that at present the most important external factors affecting the innovation activity of Russian firms are state support, both at the firm level and at the regional level, economic situation in the region, institutions, and quality of human capital. At the same time, we found several factors such as political stability, tax policy, and investment risks to be insignificant. These results require further analysis. We also found that the impact of the factors mentioned above depends on whether a region receives state support. The results imply that a differentiated policy that considers regional characteristics will probably be more effective than a uniform policy on innovation.