Effect of Knowledge Sources on Firm Level Innovation in Tanzania

Abstract

This paper analyses the impact of different sources of knowledge on product and process innovation in Tanzania using firm-level data. We specifically analyse the separate impacts of internal knowledge, external knowledge and the combined impact of both types of knowledge on firms’ product and process innovation decisions. The analysis reveals that the purchase of machinery, equipment or software, year of firm establishment, the sector a firm belongs to, and internal research and development impact on product and process innovation. Product innovation is more constrained by a lack of external knowledge than process innovation. External research and development do not affect product or process innovation and the joint effect of internal and external knowledge on product innovation exceeds the separate effects of internal and external knowledge on innovation. Furthermore, external knowledge acquisition and firm spending on internal research and development affect product and process innovation more effectively for older firms and firms in the services sector. Finally, the interaction of external and internal knowledge raises chances of undertaking product and process innovation with internal and external knowledge having greater impact on innovation when internal and external knowledge complement each other than when utilized separately.