Innovation Efforts of Small Businesses in Latin America

Purpose of the study: in this paper, we analyze the effects of institutional dynamics on innovation efforts of small businesses in Latin America. Methodology/approach: we use a survey sample of 11,446 small Latin American businesses from The World Bank; The survey comprised answered questions regarding their innovation efforts in the last three years: product innovation, process innovation, and investments in research and development; To assess the effect of institutional dynamics (reforms and reversals), data from the Economic Freedom Index were captured. Main results: we conclude that in small businesses in Latin American countries, innovation efforts may be more linked to the preparation to face an institutionally inefficient environment than to take advantage of the environments that have had an institutional improvement. Theoretical/methodological contributions: these small business movements may be more linked to the search for survival in an uncertain environment, contradicting the expected effects that there would be more innovation efforts when the environment was conducive to it. Relevance/originality: this study is valuable because it allows the analysis of what types of institutional dynamics can lead to what types of responses in innovation efforts of small businesses. Social/management contributions: the study also contributes by demonstrating whether the formulation of institutional reforms can impact small businesses in the Latin American context, thus being important for the development of public policies.