Innovation and firm performance: evidence from Tanzania manufacturing firms

Literature abound of firm’s level heterogeneity in Tanzania have ignored the role played by firm’s innovative activities to its performance. Because of this fact, the study addresses this shortcoming. Using the World Bank’s Enterprises Survey data for the Tanzania manufacturing firms and applying appropriate econometric techniques, this study examines and assess whether innovation activities gained through spillovers effects (by participating in trade), acquisition of technology from abroad through licensing of technology, technical training of employees to adopt new technology as well as through domestic firms’ joint venture with foreign firms has any significant effect on performance of Tanzania manufacturing firms. The main findings of this study show that the practices of innovation activities are consistent with firms’ level characteristics and that, firms’ size, sector as well as age are important in determining firm’s participation level into innovation activities. Results that are based on fixed effects panel model show that firms that offer technical training to its permanent employees perform better compared to those that do not offer any training. Firms that have managed to acquire knowledge from abroad in form of licensing of technology have minimal effect on firm performance. Furthermore, there is a positive though insignificant performance differences among firms that participated in international trade compared to those that do not trade with the rest of world. The same results were observed in firms with foreign ownership structure. The study concluded that among other things, interaction of firms of Tanzania in global market did not yield expected knowledge spillover to domestic firms. At the end of the study the implications of the study were provided.