Innovation Activities and Competitiveness: Empirical Evidence on the Behaviour of Firms in the New EU Member States and Candidate Countries

Why do some firms perform better in globalised markets than others? In the framework of CASE four year project "MICRODYN - The competitiveness of firms, regions and industries in the knowledge-based economy: What room for job-rich growth in Europe?" CASE Network Studies and Analyses No. 424 aims to explore the factors influencing the ability of firms to compete in globalised markets.

Much of the recent literature postulates that the key to answering this question lies in the firms’ innovation activities. The competitiveness of firms, measured by their market share, is postulated to depend both on indicators of firms’ innovation behaviour such as improvements in cost-efficiency, labour productivity as well as investment in new machinery and equipment and on characteristics of firms; their environment such as location, experience, technological intensity of their industries and the intensity of competition. Three main channels through which innovation activities impact the competitiveness of firms are identified: improvements in cost efficiency, productivity of inputs and quality of products.