The survival effects of non-R&D induced innovation during crisis

Abstract

Using firm-level data from 41 countries, this study investigates how resource-constrained firms can strengthen their resilience to resist the COVID-19 crisis through non-R&D induced innovation. The empirical results show that firms in Middle- and Low-income countries, where access to government aid is often constrained, can enhance their survival prospects by internally upgrading their learning and adaptive capabilities. Specifically, non-R&D induced innovation can effectively substitute for insufficient government financial support by enabling firms to adjust operations and maintain competitiveness during the Covid-19 pandemic. The findings emphasise the importance of jointly considering government support and innovation in firm survival analyses, as omitting either factor may introduce potential omitted variable bias. To address this, supervised learning approaches are employed to predict whether firms that exited had received government support prior to closure. In addition, this study advances the literature by uncovering the complementary roles of innovation and government financial interventions, and highlights context-specific strategies that policymakers should adopt to improve firm resilience amid external shocks.