Determinants of manufacturing firms’ Research and Development investments: evidence from Kenya

Abstract

This study investigates effects of firm-level, sector-level and business environment factors on manufacturing firms’ Research and Development (R&D) investment decisions in Kenya. Design/methodology/approach – Panel Probit regression model is employed to analyse effects of the explanatory variables on manufacturing firms R&D investment decisions. Findings – Access to external finance, lower informal sector competition, exports market participation, larger firm size and firms in high technology subsectors increase probabilities of undertaking R&D investment decisions. Research limitations/implications – The findings underscore the need to consider institutional framework, aimed at easing business environment constraints related to access to finance, export promotion and competition from informal sector enterprises. Future research should consider cross-country analysis within the Sub-Saharan African (SSA) region to understand implications of institutional contexts that prove to be a challenge to address in a study based within a single country. Practical implications – Policymakers need to consider addressing business environment constraints that impede R&D investments by private sector enterprises in developing countries. Formal private sector firms should design R&D investment strategies and lobby for policy interventions targeted at business environment constraints. Originality/value – This study considers effects of variables underexplored in existing literature, notably competition from informal sector firms, R&D-intensity technological classification and an objective measure of access to finance. The study also utilises a panel survey data, which was underexplored in prior studies within SSA economies.