Internal innovations, foreign technology and productivity in Sub-Saharan Africa’s manufacturing firms: The role of absorptive capacity

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Abstract Internal firm innovations and external knowledge/technology transfer are key for spurring the growth of firms and economies. We investigate whether firms that engage in such innovations are more likely to be productive than others as well determine if external knowledge transfers may have an effect on labor productivity mediated by the existence of internal absorptive capacity (generated by human capital and R&D). Using the World Bank Enterprise Survey of 26 African countries and employing both OLS and 2SLS, we find that firms that engage in innovations experience more growth. Most fundamentally, importation of inputs alone in the absence of other innovations does not maximize firm productivity. Finally, firms with a higher absorptive capacity in addition to the other innovations enjoy higher efficiency gains from their imported inputs irrespective firm ownership and size. Government should pursue policies that enhance internal absorptive capacity so as to enable firms tap the global opportunities.

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