Impact of Business Environment on Innovation: Evidence from Eastern Europe and Central Asia

Ivanna Blagova & Liudmyla Tokhtarova

Student thesis: Master thesis


In this paper we make an attempt to determine whether non- nancial business environment factors can be used to increase innovation undertaken by rms in Eastern Europe and Central Asia. We use rm-level pooled data from 2002 and 2005 rounds of the Business Environment and Enterprise Performance Survey to show that more competitive markets, improved tax administration, as well as better law enforcement and property rights protection, stimulate rms' innovative activities in these transition economies. We also investigate whether information environment in uences the level of innovation companies undertake. We estimate an IV probit model where competition is instrumented due to a reverse causality problem. The results stand robust when our model is applied to di erent innovation variables, when alternative competition regressors are used, as well as when we control for access to nance. To explore heterogeneity between rms in our sample we conduct a subsamples analysis. We divide the companies with respect to age, size, ownership status, and regions. A number of interesting di erences between rms is observed when it comes to the sensitivity of their innovative activities to studied factors.

EducationsMSc in Advanced Economics and Finance, (Graduate Programme) Final Thesis
Publication date2014
Number of pages68