The impact of firm characteristics, business competitiveness, and technology upgrade hurdles on R&D costs


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The study explores factors influencing research and development (R&D) costs in developing economies. The findings may inform the decision-making process for firms keen on innovation-related expenditures. The paper examines 164 Kenyan firms using the World Bank Enterprise Survey (WBES) data for 2018. These factors are classified into three broad categories. These are firm characteristics (age, size, and ownership), business competitiveness (export orientation, innovation strategies, and informal competition), and technology upgrade challenges (skills availability, financial constraint, and technology incompatibility). The findings reveal that approximately 11% of firms incurring R&D costs export their products (services). Exportation, skilled labor availability, and degree of informal competition correlate positively and significantly to R&D expenditure. The largest ownership (%) has a marginal effect on the outcome variable. Moreover, firm size substantially influences R&D costs, with small to medium firms incurring lower costs than their larger counterparts. However, firm age, innovation strategy, financial constraint, and technology incompatibility weakly influence the outcome variable. The product innovation strategy’s interaction effect with skills, firm age and informal competition substantially impacts R&D costs. Notably, firms’ R&D spending must be in tandem with the domestic informal competition intensity, skills availability, and foreign market targeted. The study employs the Ordinary Least Squares (OLS) regression in examining the relationship between the predictors and the dependent variable.

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    • Table 1. Description and measurement of variables
    • Table 2. Firm distribution by size and innovation strategy
    • Table 3. Variable summary statistics
    • Table 4. Correlation matrix
    • Table 5. OLS regression results of the determinants of R&D costs
    • Table 6. Innovation strategy interaction’s effect on R&D costs
    • Table 7. Robustness check of the determinants of the R&D cost model
    • Conceptualization
      Edmund Mallinguh
    • Formal Analysis
      Edmund Mallinguh, Yuriy Bilan
    • Investigation
      Edmund Mallinguh, Christopher Wasike
    • Methodology
      Edmund Mallinguh, Zeman Zoltan
    • Software
      Edmund Mallinguh
    • Visualization
      Edmund Mallinguh, Christopher Wasike
    • Writing – original draft
      Edmund Mallinguh
    • Data curation
      Christopher Wasike
    • Project administration
      Yuriy Bilan, Zeman Zoltan
    • Resources
      Yuriy Bilan, Zeman Zoltan
    • Supervision
      Yuriy Bilan, Zeman Zoltan
    • Validation
      Yuriy Bilan, Zeman Zoltan
    • Writing – review & editing
      Yuriy Bilan, Zeman Zoltan
    • Funding acquisition
      Zeman Zoltan