Assessing the effect of absorptive capacity and economic grants on innovation: Evidence from Peruvian MSMEs

Micro, small and medium-sized enterprises (MSMEs) have been recognized as key players in promoting countries’ economic development through innovation. In Peru, 99.5% of the formal companies are MSMEs; however, their efforts to innovate are low, representing just 0.12% of the gross domestic product (GDP). Not surprisingly, Peru is at the bottom of the region in terms of innovation indicators. Then, strengthening these companies’ innovation capabilities could have a positive effect on the Peruvian economy. The government has launched some initiatives through Innovate Peru (Peru’s national innovation agency) to achieve this goal, but there is no evidence of their impact yet. These initiatives focused on MSMEs aims to build capabilities in these companies. Among the main capabilities to innovate, literature suggests that absorptive capacity (AC) is necessary to acquire, assimilate, transform, and exploit external knowledge for commercial purposes. Accordingly, the present study will assess the impact of absorptive capacity on innovation in the case of MSMEs that received a grant from Innovate Peru. We gathered data from 85 MSMEs that participated in the program ‘technological missions’ between 2014 and 2016. AC was theorized as a concept made up of three dimensions: external knowledge acquisition (acquire), human resources training (assimilate), and internal R&D (transform and exploit). Preliminary results support that the three dimensions of AC has a positive
impact on innovation, while the impact of the innovation grant was found to be non-significant. These results are expected to have both theoretical and practical implications (for Peruvian MSMEs and Innovate Peru).