Does innovation stimulate performance? The case of small and medium enterprises in regional Australia

Alam, Khorshed ORCID: and Adeyinka, Adewuyi A. ORCID: (2021) Does innovation stimulate performance? The case of small and medium enterprises in regional Australia. Australian Economic Papers, 60 (3). pp. 496-519. ISSN 0004-900X


Researchers have mostly estimated the performance–innovation nexus as a one-way relationship at macro levels. However, the possibility of reverse causality has not yet been given the attention it deserves. In this study, we consider the adoption of information and communication technology (ICT) to innovate processes, products, marketing and organisations among small and medium enterprises (SMEs) in the Western Downs region of Queensland, Australia. We employed a simultaneous equation model to capture the joint determination. The results indicate the existence of a feedback effect on the performance–innovation relationship. Specifically, the effect of innovation can be attributed to marketing and organisational innovation. The use of ICT strategies and the Internet for business purposes have a significant effect on the performance of SMEs. A change mindset is also strongly related to using the Internet to search for business opportunities, while mindset and usage have some effect on innovation, particularly when the performance is not endogenous. Finally, the agricultural sector is found to lag in performance and innovation relative to the non-agricultural sector. Previous models might have misspecified the performance–innovation relationship because the simultaneity bias was not accounted for; a situation that could mislead policy decisions. This study provides new empirical evidence on location-specific research for strategic interventions.

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Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Additional Information: Permanent restricted access to Publihsed version, in accordance with the copyright policy of the publisher.
Faculty/School / Institute/Centre: Current - Faculty of Business, Education, Law and Arts - School of Business (18 Jan 2021 -)
Faculty/School / Institute/Centre: Current - Institute for Resilient Regions - Centre for Health Research (1 Apr 2020 -)
Date Deposited: 13 Sep 2021 04:00
Last Modified: 29 Sep 2021 05:24
Uncontrolled Keywords: feedback effect; ICT; innovation; simultaneous equation model; SMEs; performance; regional Australia
Fields of Research (2008): 14 Economics > 1402 Applied Economics > 140218 Urban and Regional Economics
10 Technology > 1005 Communications Technologies > 100502 Broadband and Modem Technology
14 Economics > 1403 Econometrics > 140301 Cross-Sectional Analysis
Fields of Research (2020): 38 ECONOMICS > 3801 Applied economics > 380118 Urban and regional economics
46 INFORMATION AND COMPUTING SCIENCES > 4609 Information systems > 460999 Information systems not elsewhere classified
38 ECONOMICS > 3802 Econometrics > 380201 Cross-sectional analysis
Socio-Economic Objectives (2008): B Economic Development > 91 Economic Framework > 9104 Management and Productivity > 910406 Technological and Organisational Innovation
E Expanding Knowledge > 97 Expanding Knowledge > 970114 Expanding Knowledge in Economics
B Economic Development > 89 Information and Communication Services > 8903 Information Services > 890399 Information Services not elsewhere classified
Socio-Economic Objectives (2020): 28 EXPANDING KNOWLEDGE > 2801 Expanding knowledge > 280108 Expanding knowledge in economics
22 INFORMATION AND COMMUNICATION SERVICES > 2204 Information systems, technologies and services > 220499 Information systems, technologies and services not elsewhere classified
15 ECONOMIC FRAMEWORK > 1599 Other economic framework > 159999 Other economic framework not elsewhere classified
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