Product and Process Innovations and the Institutional Context of Transition Economies: The Effects of External Knowledge

In this chapter, the authors study how external knowledge contributes to the innovation results of firms in transition economies. Specifically, the authors distinguish between product and process innovations and identify the geographical origin of external knowledge – from the home country or from abroad. Theoretically, the authors discuss the innovation systems of transition economies and the effects of foreign and national external knowledge on product and process innovations in these under-researched contexts. Using a sample of firms from 19 countries from wave V of the Business Environment and Enterprise Surveys, the authors find that foreign and national external knowledge both contribute to the achievement of product and process innovations. However, the two types of external knowledge exert different effects depending on the innovation outcome analyzed. Firms in transition countries that incorporate foreign external knowledge are more likely to achieve product innovations than those that acquire national external knowledge. In contrast, both types of knowledge are equally useful for achieving process innovations.