Analysis of Determinants of Innovation in Small Businesses with Decision Tree

Tuncel C. O. , Oktay D.

Turkish Economic Association (TEA) 7th International Conference on Economics, Ankara, Turkey, 9 - 11 April 2021, pp.1-10

  • Publication Type: Conference Paper / Unpublished
  • City: Ankara
  • Country: Turkey
  • Page Numbers: pp.1-10


Innovation is among the most important sources of productivity and economic growth. Therefore, for a country, more innovative firms mean higher productivity and better economic growth performance. Although small firms are seen as the creators of innovation, the relationship between firm scale and innovation has always been controversial. When the TURKSTAT Innovation Research statistics are examined, it is seen that the lowest share of innovative firms is found in small enterprises. Based on this, this study explores the determinants of technological innovations in small businesses operating in the manufacturing industry. In this direction, factors affecting product and process innovations were analysed by means of probit regression and decision tree techniques using a sample obtained from the 2014 TURKSTAT Innovation Research micro dataset. Decision tree findings indicate that the most influencing factor on the probability of small businesses to make a product innovation is the training activity related to innovation After training activity, it is seen that the most effective factor is R&D activity. The process innovation model demonstrates that the most effective factor is the R&D activity and the second is the training activity related to innovation. In the product innovation probit model, it is seen that in addition to R&D and training activities, collaboration, intellectual property, export intensity, and human capital variables have positive and significant effects, while the productivity gap negatively affects product innovation. On the other hand, the process innovation probit model shows that the export intensity and the productivity gap do not have significant effects on process innovation.

Keywords: product innovation, process innovation, small business, manufacturing industry, decision tree