Public funding as a catalyst for firms' technological innovation: Case of Cyprus, Croatia and Portugal

Abstract

The advent of the new growth theory has entrenched the need for public policies that accelerate and protect regional innovative growth. In line with this, national and supranational economies have been actively engaged in financial programs to support Small and Medium Scale enterprises (SMEs) in their quest for innovation and has been hailed as an effective gesture for expediting the growth of innovation in countries and even eliminating market failures. However, recent evidence seems to reveal that in some countries it has not always been the case as funding from public sector has either been shelved off to non-innovative ventures, not directly used for innovation or not even effective enough. Therefore, using logistic regression model and a combined data of 8,146 Small and Medium scale enterprises (SME's) from European Community Innovation Survey (2012-2014), the research seeks to assess the how public funding affects product, process and marketing innovation efforts in generating technological innovation represented by patents. For the purpose of the research, we pegged National and European funding as control variables. The results revealed that whilst product and process innovation efforts were effective at creating technological innovation for Croatia and Cyprus, both National and European public support provided had no significant influence on their product, process and marketing innovation efforts even though they were significant in creating technological innovation. However, it was found that in Portugal, another southern province, National and European support in accelerating their product, process and marketing efforts for innovation were strongly influential in the creation of technological innovation. Finally, policies for effective funds usage and public-private compilation were proposed in line with our findings.