Abstract
In this paper, we analyze the drivers of firm innovation in 35 African and Latin American countries. We investigate how firm-level capabilities and national country characteristics affect firm innovation activities and innovation outputs. Using data from the World Bank Enterprise Surveys, we analyze the factors driving firm-level innovation distinguishing two stages in the innovation process: firm engagement with innovation inputs and the translation of innovation inputs into innovation outputs. The paper provides empirical support for the importance of country-level macro and institutional characteristics, in addition to firm-level capabilities, across a large number of countries in determining firm-level innovation. We demonstrate that capital investment and training are just as important innovation activities as research and development spending in developing economies. We highlight the heterogeneity in firm innovation across firm size, country- and firm-level characteristics, and economic sectors.