The Role of Innovative SMEs to the Growth of Regional Economy: The Case of Czech Republic

Abstract

Globally, we cannot deny the fact that SMEs form part of the fabric of the economic growth. This presupposes that they serve as a pivot for economic development as they unfold the contributions such promoting economic growth, creating innovation as well as enhancing prosperity. This paper examines the relationship between the small and medium-sized enterprises (SMEs) and economic growth of Czech regions. The paper is based on primary research data collected within the Community Innovation Survey in Czech Republic. This survey provides a unique source of data on various aspects of innovation development in SMEs, such as their objectives, cooperation, funding, etc. We show that the share of innovative SMEs has a strong positive impact on the economic accounts of NUTS 4 regions. We also show that this effect has origins in the structure of intellectual capital (both human and structural) of SMEs. We use the data from the Community Innovation Survey to develop the proxy variables of the components of regional SMEs' intellectual capital. We use structural equation models to demonstrate the statistical significancy of these effects and various direct and indirect effects of the share of innovative SMEs on the indicators of regional economic performance. The results show that new-to-firm innovative SMEs are critical for regional economies based on innovation adoption strategy. Human and structural capital represent important prerequisites for this strategy. This has important policy implications, supporting the role of regional embededness to sustain the role of SMEs. This can also provide some generalizations on the contribution of SMEs for national economies.