The Impact of Human Capital on Product Innovation

Abstract

This research study is focused on the influence of human capital on
innovation in SMEs. The human capital factors are the independent
variables: employee’s education, employee’s development, and
employee’s challenge, while the dependent variable is product innovation.
Data of manufacturing and service firms in the economies of Africa and
the Middle-East are taken from the World Bank Enterprise Survey
database through a stratified random sampling. A sampled of 33,977 firms
are observed in 53 countries. The methodology employed in this study is
the quantitative research approach. A pairwise correlation, regression
model and forecasting model are used for the analyses of the data. The
findings from the analyses show satisfactory levels of significance with pvalues below 1% even though not all the Pearson correlation coefficients
of the independent variables with the dependent variable are high. The
goodness-of-fit, in terms of R-squared, Root MSE, and mean percentage
error, found from the regression of human capital with product innovation
is slightly poor. This is due to the loose relation between independent and
dependent variables in real life and partly to the data available for this
research. However, human capital acquired from skilled and formal
training of employees has a more positive and significant influence on
SMEs to innovate products. The findings have implications on managerial
decisions and governmental policies. The results also give insight into the
limitations of the research and areas for further investigations.