Human Capital and Innovation in Developing Countries: A Firm Level Study

In this paper we test whether human capital endowments of firms and additional practices of firms, such as formal training and employee slack time, have a positive relation with the innovative output of firms. This paper contributes to the literature about factors that influence innovation at the firm level and the literature about human capital and innovation at the national level. Furthermore, we study this relation in developing countries, while most studies about innovation have been done in developed countries. We test this relation in Kenya, Tanzania and Uganda with data stemming from the Enterprise Surveys of the World Bank. Our results show that there exists a positive relation between human capital and innovation. In particular, the role of practices of firms such as offering formal training and employee slack time are conducive for innovative output.