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Capital Is Not Enough: Innovation in Developing Economies

2012

Jeffery McMullen Kendall Artz Steve W Bradley Edward M. Simiyu

Economic development and social entrepreneurship often conceive of poverty as a resource allocation problem in which a lack of capital prevents the poor from increasing their income through entrepreneurship. This allocative view, however, represents only one possible approach to conceptualizing entrepreneurial opportunity. The alternative discovery- and creativity-based views place a greater emphasis on innovation which implies that superior ideas are also needed if poverty is to be reduced through firm performance. Drawing from a survey of 201 small business owners involved in a microcredit programme in Nairobi, Kenya, we find that the financial, social, human capital–performance relationships are mediated in part by innovation. Further, we find that differentiation-related innovations lead to better firm performance than novelty-related innovations.

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