INNOVATION BARRIER TO SMES DEVELOPMENT: EVIDENCE FROM AFGHANISTAN

Abstract

Innovation plays a vital role not only in large firms but also in small and medium-sized enterprises (SME) worldwide. In Afghanistan, SMEs are emerging to influence the economies by employing, contributing to exports and forming a major portion of export and tax revenues. This study aims to examine the innovation barriers to development at the SME level to offer policy implications in Afghanistan. The Two-Hierarchical Level Model (HLM) was used. A questionnaire was designed using the thematic areas of business innovation literature and adapted following Oslo's manual's recommendations. Collected in 2020 the cross-sectional data was examined through an empirical analysis by testing five research hypotheses to validate the research framework.  The target population was the SME key persons in Kabul city. Results show that firm characteristics are innovation barriers, SMEs that did not innovate were smaller in terms of employees and assets, lack of finance was a reason for abandoning innovative projects, and there are hierarchical barriers that humper innovation at the organizational, value chain and market level. There is a real need to continue studying the development of the innovation barriers for SME sectors that may enrich the world communities.