Discussion Paper No. 251 of 2021 on Determinants of Manufacturing Firms’ Research and Development Investments in Kenya

Abstract

Research and Development (R&D) investment underpins firm innovation and productivity, providing opportunities for low- and middle-income countries to converge to high income countries. Recognizing these developmental roles, national, regional and global policies call for measures to promote R&D investment by private sector firms as part of the broader development agenda. The private sector is the key channel for growth of R&D investment, with the government expected to provide incentives and institutional support. Although manufacturing is a focal policy agenda for Kenya, its declining productivity and contribution to Gross Domestic Product (GDP) is a key policy concern. With only 24 per cent of the Kenyan manufacturing firms reporting to undertake R&D investment (World Bank Enterprise Survey, 2018), and the aggregate R&D investment for the country estimated at 0.8 per cent of GDP, falling below the one per cent target set by the African Union Agenda 2063 and 2 per cent target set by the Kenyan government, research on the subject is imperative. The purpose of this study is to provide insights on institutional context and analyze the effects of firm-specific and business environment factors on R&D investment decisions and intensity by Kenyan manufacturing firms.