Innovation and productivity in small and medium-sized enterprises: evidence from the Colombian manufacturing sector

PurposeThis paper aims to explore the factors that influence innovation and productivity in small and medium-sized enterprises (SMEs) manufacturing enterprises in Colombia, in comparison with larger firms.Design/methodology/approachThe study was based on firm-level panel data extracted from a census of Colombian manufacturing firms between 2007 and 2014. The authors used an adapted version of the Crepon-Duguet-Mairesse (CDM) sequential approach that interrelates R&D intensity, innovation outputs and productivity.FindingsThis study's findings indicate that investing in R&D has a positive impact on innovation in both SMEs and larger firms. However, the effect on productivity is significantly higher for SMEs. Evidence also suggests that the innovation performance of SMEs and larger firms is influenced by co-evolution among the firm's resources and capabilities, knowledge flows with external organizations, access to funding and knowledge appropriability conditions. However, highly qualified personnel, internal and commercial sources of funding, and market knowledge sourcing are crucial for innovation in SMEs. These conclusions are especially relevant for the design of industrial and innovation policies in developing economies, where innovation is a prerequisite for catching up and economic advancement.Originality/valueThe paper provides new empirical evidence on the determinants of innovation in SMEs, the mechanisms by which innovation capabilities and outputs affect its productive performance, and how the relationship between these dimensions varies with firm size in the context of a developing country.