determinants of innovation in laos: a survey of micro and
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Kobe University Repository : Kernel
タイトルTit le
Determinants of Innovat ion in Laos : A Survey of Micro and SmallBusinesses in Vient iane(Determinants of Innovat ion in Laos : A Surveyof Micro and Small Businesses in Vient iane)
著者Author(s) Phonvisay, Alay / Vixathep, Souksavanh
掲載誌・巻号・ページCitat ion 國民經濟雜誌,218(5):77-92
刊行日Issue date 2018-11-10
資源タイプResource Type Departmental Bullet in Paper / 紀要論文
版区分Resource Version publisher
権利Rights
DOI
JaLCDOI 10.24546/E0041655
URL http://www.lib.kobe-u.ac.jp/handle_kernel/E0041655
PDF issue: 2021-12-14
国民経済雑誌 第 218 巻 第 5号 抜刷
平 成 30 年 11 月
Determinants of Innovation in Laos :
A Survey of Micro and Small Businesses
in Vientiane
Alay Phonvisay
Souksavanh Vixathep
77
Determinants of Innovation in Laos :
A Survey of Micro and Small Businesses
in Vientiane
This paper is based on the presentation made by Dr. Alay Phonvisay on January 11th
sponsored by the Keizai-Keiei Gakkai, Kobe University. He received many valuable
comments by the participants, among others by Dr. Souksavanh Vixathep. His com-
ments were constructive enough for the presenter to decide to write a joint paper with
him. The co-authors are grateful to the Keizai-Keiei Gakkai for giving such an opportu-
nity.
Dr. Alay Phonvisay is Deputy Director of Research Division, Assistant Professor at
the Faculty of Economics and Business Management, National University of Laos. He
studied at the Graduate School of International Cooperation Studies, Kobe University,
and acquired the degree of Master of Economics in 2008 and Doctor of Economics in
2011. His research interest is wide-ranging, including industrial policy ; innovation in
SMEs; trade policy ; universal health coverage ; and child health and poverty.
Dr. Souksavanh Vixathep is Associate Professor at the School of Economics / Gradu-
ate School of Economics, University of Hyogo. He studied at the Graduate School of
International Cooperation Studies, Kobe University, where he obtained the doctoral
degree in economics in 2009. His research interests include international trade ; enter-
prises in development ; SME development and entrepreneurship and innovation promo-
tion ; and industrial policy. He has done extensive research on the garment industry in
Southeast and South Asian regions, and innovation and entrepreneurship in SMEs in
Indochina.
Abstract
The Government of Laos has recognized the role and supported the development of
the private sector. This sector is expected to provide employment opportunities to the
young labor force, and contribute to poverty reduction and socioeconomic development.
Following the enactment of the business law in 1994, the role of SMEs which form the
backbone of the private sector has become more relevant to the country’s economy.
Alay Phonvisay
Souksavanh Vixathep
1 Introduction
The economy of Laos has experienced rapid growth in recent time, with an annual growth rate
of seven percent or higher. Yet, economic growth largely relies on extensive resource exports,
which is considered to be unsustainable in the long run. Resource exploitation has undoubtedly
attracted more foreign direct investment, increased exports and government revenue. Along with
the adoption of an open-door policy in the late 1980s, the Government of Laos has recognized the
role and supported the development of the private sector. This sector is expected to provide
employment opportunities to the young labor force, and contribute to poverty reduction and socio-
economic development.
Small and medium enterprises (SMEs) play a crucial role in socio-economic development by
employment generation, contribution to output and growth, export growth, investment, tax reve-
nue, poverty alleviation, economic empowerment and the broader distribution of wealth (Davis et
al., 1993 ; Hallberg, 2000 ; Asasen et al., 2003 ; and Harvie, 2015). SMEs account for between 50
percent and 95 percent of employment in many ASEAN member countries (ERIA, 2014), and
this contribution tends to be proportionally larger from medium sized businesses. It suggests that
their contribution to GDP varies widely across regional economies, between 23�58 percent
第218巻 第 5 号78
Upon enacting a decree on SME promotion (Decree No. 42 / PM), the policy on support-
ing SMEs was embedded in the five-year national socio-economic development plans.
Recently, promoting innovation among SMEs has been highlighted in the Lao SMEs
Development Plan 2016�2020. SMEs in Laos still mainly concentrate on the domestic
market. They are mainly domestically owned, lack managerial and technical skills, and
face financial constraints in business operation and expansion, and fierce competition in
an increasingly globalized environment. Overall, SMEs in Laos have experienced a
rapid expansion in the last two decades, increasing in the number (of enterprises) from
3,106 in 1990�1995 to 10,631 in 1996�2000. Considering the important role and contri-
bution of SMEs to economic development in Laos, the proposed study attempts to
address the determinants of innovation. The analysis applies primary data from a self-
conducted questionnaire survey of 200 manufacturing micro and small enterprises in
Vientiane in 2016. The Survey covers the manufacturing subsectors which are catego-
rized into food and non-food sectors. The results indicate that owner education appears
to stimulate some innovation activities, such as introduction of new products which tend
to be new to the market. The findings highlight the importance of human capital on in-
novation in enterprise development.
Keywords Innovation, Human capital, SMEs, Laos
(ERIA, 2014), while Asasen et al. (2003) suggest a figure of between 20�40 percent.
SMEs which form the backbone of the private sector in Laos, mainly concentrate on the domes-
tic market. They are mainly domestically owned, lack managerial and technical skills, and face
financial constraints in business operation and expansion, and fierce competition in an increas-
ingly globalized environment. Overall, SMEs in Laos have experienced a rapid expansion in the
last two decades, increasing in the number from 3,106 (1990�1995) to 10,631 (1996�2000). In
the first decade of the 2000s, the number of SMEs rose by more than 110 percent from 20,966
to 44,916.
Based on the first national economic census in 2006, there were 126,913 enterprises nation-
wide, including 126,717 SMEs or equal to 99.8 percent. There were 196 large enterprises or
equal to 0.2 percent. The total number of labor force is 345,138, including 286,575 people working
for SMEs, or equal to 83.0 percent. Large enterprises employ 58,563 people, or equal to 17.0
percent. Most of the SMEs belong to the trade sector (including wholesale and retail trade and
repair of motorcycles), which represents about 64.5 percent ; followed by the processing industry
sector, representing 19 percent. SMEs are mainly located in Vientiane Capital (22.7%),
Savannakhet province (11.4%) and Vientiane province (10.0%). In Vientiane Capital, the center
of the Lao economy, there were 35,021 enterprises registered, of which micro enterprises
comprise about 83 percent (28,990), while small enterprises make up merely 7 percent (2,265)
of the total number.
Innovation is essential for firms �even more so in the current globalized environment �which
intend to develop and maintain a competitive advantage or to develop a new market (OEDC,
2005; Becheikh et al., 2006 ; Ho and Pham, 2014). The degree of importance of innovation to
competitive advantage is even higher in SMEs than in larger enterprises. The contribution of
SMEs to economic growth is greatly channeled through their innovativeness (Radas and �����,
2009). There exists a view on the role of innovation at the macro- and micro-levels in the econ-
omy. In the former, innovation is deemed to contribute to the nation’s industrial and economic
growth, while in the latter enhances competitive advantage and potential growth of firms (Pham
and Matsunaga, forthcoming).
In literature, the measurement and treatment of innovation differs greatly across academic
disciplines and among the scholars. In Becheikh et al. (2006) innovation is defined as “imple-
mented technologically new products and processes and significant technological improvements
in products and processes’’. In their view (technical) innovation implies a technologically new
product / process or an existing product / process that has undergone a significant technological
Determinants of Innovation in Laos : A Survey of Micro and Small Businesses in Vientiane 79
improvement.
In literature the measure of innovation is treated as a dependent variable in a model and
explained by a set of factors that are considered to influence its change (Bhattacharya and Bloch,
2004 ; Laursen and Salter, 2006 ; Fabrizio and Thomas, 2012 ; Garriga at al., 2013 ; Klingebiel and
Rammer, 2014). Several factors, such as internal and contextual factors, have been addressed in
economics and management literature : firm size (Bhattacharya and Bloch, 2004 ; Klingebiel and
Rammer, 2014), demand structure (Fabrizio and Thomas, 2012), resource allocation and breadth
(Klingebiel and Rammer, 2014).
Considering the important role and contribution of SMEs to economic development in Laos, the
study attempts to address the crucial determinants of firm innovation. The analysis applies
primary data from a self-conducted questionnaire survey of 200 manufacturing micro and small
enterprises in Vientiane in 2016 and several interview surveys in major industrial centers of Laos
(Vientiane, Savannakhet, Pakse). The Survey covers the manufacturing subsectors which are
categorized into food and non-food sectors. It is worth noting that despite the application of a
stratified random sampling procedure, the data obtained during the survey are influenced by the
readiness of enterprise owners for interview.
The remaining of the paper is laid out as follows. Section 2 presents some recent trends of
SMEs. The empirical model and data are described in Section 3. Analysis results are presented
and discussed in Section 4. Section 5 concludes with some policy implications.
2 Laos’ SMEs Overview
In Laos, following the enactment of the business law in 1994, the role of SMEs has become
more relevant to the country’s economy. The first policy to promote SMEs in Laos was found
in the 4th five-year national socio-economic development plan (NSEDP 4). However, in this
very NSEDP SMEs were referred to as small industry and handicraft business. After the 1994
business law, the policy on supporting SMEs was embedded in the five-year national socio-
economic development plans. In the NSEDP 6, the plan aimed to promote SMEs to expand
rapidly, create the conditions to gradually strengthen the financial status of state-owned enter-
prises, including the improvement of their debt situation.
Small and Medium sized Enterprises’ Promotion and Development Office (SMEPDO) was
established in 2005 which has the function of formulating strategies and work plans for the
promotion of SMEs. After that a Five-Year SMEs Development Plan was formulated in 2006. In
2012 SMEPDO was promoted to the Department of Small and Medium Enterprise Promotion
第218巻 第 5 号80
(DOSMEP). In each of the Five-Year SMEs Development Plans since 2006, the policy highlights
the changing ranking of key policy priorities to reflect the rapidly changing contemporary devel-
opments in domestic, regional and global markets. Promoting innovation among SMEs has been
highlighted in the SME Development Plan 2016�2020, and it has been regarded as the top
priority. This policy priority has been harmonized with the strategy on industrialization and
modernization in the Ten-Year Socio-economic Development Strategy (2016�2025).
Prior to 2004 SMEs in Laos were categorized only by the number of employees. In 2004
according to Prime Minister Decree No. 42, SMEs can be categorized by number of employees,
value of assets and sales. Small enterprises are those having an annual average number of
employees not exceeding 19 persons or total assets not exceeding 250 million LAK (Lao Kip, the
currency of Laos) or an annual turnover not exceeding 400 million LAK. Medium sized enter-
prises are those having an annual average number of employees not exceeding 99 persons or total
assets not exceeding 1,200 million LAK or an annual turnover not exceeding 1,000 million LAK.
In order to improve and support SMEs in Laos the SME definition has been refined to be more
diverse by dividing SMEs into three categories namely production, trade, and service in the 2007
revision of the Decree. Moreover, in the most recent revision of the Decree in January 2017, the
Determinants of Innovation in Laos : A Survey of Micro and Small Businesses in Vientiane 81
Table 1 Number of SMEs in Laos, 1975�2013
Provinces 1975 1975�80 1981�85 1986�90 1991�95 1996�00 2001�05 2006�10 2011�13
Vientiane Capital 67 128 148 707 919 2,975 5,393 13,073 11,542
Phongsaly 1 � 3 19 32 140 263 561 545
Luang Namtha 4 3 6 16 37 223 434 806 702
Oudomxai � 3 6 34 82 333 603 1,483 1,297
Bokeo 1 3 2 25 57 154 316 857 904
Luang Prabang 27 30 50 181 267 920 1,856 3,182 2,568
Houaphanh � 1 5 28 53 204 355 964 808
Xaiyabuly 6 � 21 89 175 517 1,208 3,190 3,025
Xiangkhuang 11 16 8 57 151 269 612 1,595 1,478
Vientiane Province 17 38 36 162 284 892 1,994 4,242 3,566
Bolikhamxai 3 10 13 46 86 358 763 1,645 2,076
Khammouane 4 15 16 60 122 500 1,128 2,246 1,932
Savannakhet 34 39 53 247 373 1,402 2,702 4,662 4,025
Salavan 1 6 6 53 71 233 476 1,140 1,265
Sekong � 1 � 13 31 104 215 456 726
Champasak 50 87 65 229 326 1,227 2,223 3,968 3,230
Attapeu 3 2 2 20 38 180 425 846 1,622
Total 229 382 440 1,986 3,104 10,631 20,966 44,916 41,311
Source : Ministry of Planning and Investment, 2014.
definition of ‘micro-enterprise’ is added to the SME definition. In this new definition of SMEs,
there is no difference between sectors in regard to the number of employees. Micro, small, and
medium enterprises are those having employee not exceeding 5 persons, 6�50 persons, and 51�
99 persons, respectively.
SMEs in Laos have experienced a rapid expansion in the last two decades (Table 1), increasing
in the number (of enterprises) from 3,104 in 1991�1995 to 10,631 in 1996�2000. In the first
decade of the 2000s, the number of SMEs rose by more than 110 percent from 20,966 to 44,916
before declining to 41,311 enterprises during 2011�2013. In 2014, SMEs in Laos are approxi-
mately around 99.8 percent of the total number of firms. Comparing between regions excluding
Vientiane Capital, the central region has larger number of SMEs followed by Northern region and
Southern region. Most of SMEs in Laos are located in major cities, such as Vientiane Capital,
Savannakhet Province, Vientiane Province and Champasak Province ; especially in Vientiane
第218巻 第 5 号82
Table 2 SMEs Classified by Economic Activities (number, % share)
No. Economic Activities Micro�enterprise SMEs Total
1 Agriculture, Forestry and Fishery 1,491 672 2,163
2 Mining 68 177 245
3 Manufacturing Industry 11,596 3,861 15,457
4 Electricity, Gas 33 73 106
5 Waste Management 83 81 164
6 Construction 185 430 615
7 Wholesale and Retail 71,683 6,694 78,377
8 Transportation and storage facility 3,106 390 3,496
9 Hotel, and Restaurant 11,599 2,937 14,536
10 Information and Communication 258 111 369
11 Finance and Insurance 214 301 515
12 Property, and Real Estate 623 87 710
13 Professional, Science and Technology 282 125 407
14 Management 568 281 849
15 Security Service 1 7 8
16 Education 84 327 411
17 Health and Social Security 337 84 421
18 Art, Entertainment, and Leisure 592 271 863
19 Other Services 4,420 386 4,806
Total 107,223 17,295 124,518
Percentage share 86.1 13.9 100
Source : Ministry of Planning and Investment, 2014.
Capital which accounted for almost 28 percent or 11,542 firms during 2011�2013.
Considering SMEs by economic activities (Table 2), almost 62 percent belong to the wholesale
and retail sectors, followed by the manufacturing, and hotel and restaurant with 12.4 percent, and
11.7 percent respectively. If enterprises are categorized by the number of employees in a given
year, about 107,223 firms (86.1%) are classified as micro-enterprises in 2013. These micro-
enterprises create roughly 276,441 jobs, which share almost 60 percent of the total 470,602 jobs
created by MSMEs (Table 3). The wholesale and retail sector generate 180,836 jobs, manufac-
turing sector 82,342 jobs, and hotel and restaurant sector 60,438 jobs, respectively. It is interest-
ing to note that among these three sectors SMEs have generate more employment opportunities
in the manufacturing than micro-enterprises, while the latter dominate employment generation in
the other two sectors.
Determinants of Innovation in Laos : A Survey of Micro and Small Businesses in Vientiane 83
Table 3 Job Creation of SMEs in Laos (number, % share)
No. Economic Activities Micro-enterprise SMEs Total
1 Agriculture, Forestry and Fishery 4,820 8,059 12,879
2 Mining 212 2,979 3,191
3 Manufacturing Industry 32,246 50,096 82,342
4 Electricity, Gas 89 1,760 1,849
5 Waste Management 277 1,337 1,614
6 Construction 590 9,075 9,665
7 Wholesale and Retail 180,836 57,354 238,190
8 Transportation and storage facility 8,000 4,883 12,883
9 Hotel, Service, and Restaurant 31,004 29,434 60,438
10 Information and Communication 707 3,209 3,916
11 Finance and Insurance 732 5,376 6,108
12 Property, and Real Estate 1,384 1,311 2,695
13 Professional, Science and Technology 811 1,707 2,518
14 Management 1,700 3,314 5,014
15 Security Service 5 166 171
16 Education 293 6,848 7,141
17 Health and Social Security 913 919 1,832
18 Art, Entertainment, and Leisure 1,645 3,686 5,331
19 Other Services 10,177 2,648 12,825
Total 276,441 194,161 470,602
Percentage share 58.7 41.3 100
Source : Ministry of Planning and Investment, 2014.
3 Analytical Framework and the Survey in Vientiane
3.1 Innovation
Innovation is a complex issue, diversified and continuous process. Enterprises continuously
accumulate new knowledge and constantly modify their products and production processes to
adjust to fluctuating market conditions. Innovation is also considered as a tool of entrepreneurs
to exploit change as an opportunity for a new or a different business and service (Drucker, 1985 ;
OECD, 2005). Innovation is evaluated in different ways. On the one hand, the input-oriented
measurement of innovation uses data on R&D (research and development). But R&D expendi-
ture tends to overestimate innovation, because it includes aborted efforts that do not necessarily
lead to new products / processes or improved products / processes. On the other hand, the output-
oriented measurement applies patent data, innovation count and firm-based surveys. However, a
patent would better represent an invention rather than innovation. The method of innovation
count is deemed an objective approach which relies on innovation data from various sources, such
new product / process announcements, database, journals, etc. (Becheikh et al., 2006).
In empirical literature innovation is commonly represented by number of innovation (Acs and
Audretsch, 1988 ; Fabrizio and Thomas, 2012), number of patents (Lahiri and Narayanan, 2013),
binary variable indicating introduction of a new product / service / process or improved product /
service / process (Bhattacharya and Bloch, 2004 ; Spithoven, Vanhaverbeke, and Roijakkers,
2013), or revenue from new products (radical innovation) and revenue from significantly
improved product (incremental innovation) (Laursen and Salter, 2006 ; Garriga et al., 2103 ;
Klingebiel and Rammer, 2014 ; Love et al., 2014 ; Ozer and Zhang, 2015). For this study a
question was asked whether or not the owner / manager has had a product / service improvement
or introduced a new product / service in the last two years. Hence, a dummy variable, which
represents innovation and indicates the introduction of a new production / process or an improved
product / process, is used as an explained and explanatory variable in the empirical analysis.
3.2 Empirical Model
Adapting from Schumpeter’s theories of innovation, proxies of innovation in this paper com-
prise (i) product improvement, (ii) new product introduction to the firm, and (iii) new product
introduction to market (Schumpeter, 1934).
The empirical analysis applies a methodology for evaluating determinants of productivity using
firm-level data in a production function (Dollar et al., 2005 ; Van Praag and van Stel, 2013).
第218巻 第 5 号84
The productivity equation in Dollar et al. (2005) is expressed as
������������������� ���
where �is the vector of observable investment climate indicators (available data), �and �are
an unobservable productivity shocks that do and do not affect firm’s input choice.
With some modifications the above model can be applied for determinants of innovation :
������������ �� �� �� ��� ���
where �� is a vector of entrepreneur’s characteristics and human capital (gender, education
level, experience), �� denotes a vector of explanatory variables describing the enterprise (firm
age), and ��denotes the statistical error term. The dependent variable describing innovation is
a binary variable of probability of innovation (�������).
3.3 The Survey, Data and Variables
A questionnaire survey on micro, small and medium enterprises was conducted in Vientiane
Capital (of Laos) from March to May 2016. The target group is owners or managers of micro,
small, and medium firms in the manufacturing industries. The sampling method is a stratified
random sampling. The survey covers some industrial clusters or production centers in five major
cities of Vientiane Capital. Within an industrial cluster, firms with up to 99 employees (i.e.
SMEs) are selected with equal probability using a stratified random sampling procedure. Also, a
balance between the industrial subsectors and clusters / locations is taken in to consideration. The
samples would well represent the manufacturing industry of Vientiane Capital in terms of indus-
trial subsectors and locations / areas.
In terms of clusters / areas, the survey includes important clusters / areas of Vientiane Capital
in order to have a proper geographical coverage. Regarding the industrial sectors, 17 major
subsectors of the manufacturing industries are included. In sum, the SME Survey-2016 has 200
samples as the initial sample size. Upon data mining, there are 179 samples which can be used
for the analysis. The exclusion of observations is based on the following criteria : (1) incomplete
information on sales, labor, capital, entrepreneur’s education and experience, firm characteristics,
etc.; (2) enterprises with fewer than three employees due to low quality of book keeping ; and
(3) enterprises with more than 99 employees. The definition and description of variables are pre-
sented in Table 4. From the filed survey, it shows that the average sales of SMEs in Vientiane
Capital are about 508 million LAK and the capital equipment is roughly 363 million LAK (See
Note 3 in Table 5 for exchange rate). A representative SME would hire 13 employees in 2015
Determinants of Innovation in Laos : A Survey of Micro and Small Businesses in Vientiane 85
and the average firm’s age is 11.8 years.
In Table 5, roughly 42 percent, 69 percent, and 70 percent of the respondents report that they
have achieved in improving the existing product, introducing new product to the firm, and intro-
ducing new product to the market, respectively. The average age of entrepreneur in Vientiane
Capital is 41 years. The majority of SME owners / managers have completed at least secondary
school education (about 55%).
4 Results and Discussions
The probability estimation (Probit model) is applied to evaluate determinants of innovation
activities. All the variables are derived from one-year data (one-point data). Table 6 presents the
result from the Probit models and their average marginal effects for all three innovation activities.
第218巻 第 5 号86
Table 4 Definition of Variables from the Survey Data
Variable Definition / description
Innovation
improve Dummy variable for product improvement firm, and equals 1 if true
new to firm Dummy variable for new product introduction to the firm, and equals 1 if true
new to market Dummy variable for new product introduction to the market, and equals 1 if true
Characteristics of entrepreneur
age Age of entrepreneur (years)
male Dummy variable for male entrepreneur, and equals 1 if true
higheredu Dummy variable for university-level education or higher level, and equals 1 if true
lhsedu Dummy variable for lower and higher secondary education, and equals 1 if true
vocatedu Dummy variable for vocational education, and equals 1 if true
uptoprimedu* Dummy variable for not attending school to having completed primary school, and
equals 1 if true
trader* Dummy variable for being trader prior to start-up, and equals 1 if true
farmer Dummy for being farmer prior to establishing the business, and equals 1 if true
nonsoeworker Dummy variable for having worked in a non-state enterprise prior to start-up, and
equals 1 if true
soeworker Dummy variable for having worked in a state-owned enterprise prior to start-up,
and equals 1 if true
Characteristics of enterprise and product
food Dummy variable for food production enterprise, and equals 1 if true
firmage Age of the firm which equals 2016 minus year of establishment
firmage 2 Squared term of firm age (firmage 2=firmage*firmage)
Note : The asterisk (*) denotes the reference variable.
Overall, human capital variables (higher education) appear to determine innovation activities
of SMEs. However, human capital variable only shows statistical significance in innovation model,
namely introducing new product which is new to the market (Table 6, Column 3). A correlation
matrix is presented in the appendix (Table A1) to confirm that there is not collinearity problem
among independent variables.
The estimate for university education is positively significant for the innovation activity, such
as introducing new product to the market. This result implies that entrepreneurs with university
education have a higher probability of achieving introduction of a new product which is new to the
market, as compared to their counterparts with primary education. The result implies that high
human capital tends to enhance innovative activities in manufacturing firms in Vientiane. This
result is consistent with the findings in previous studies for both developing countries (for
Determinants of Innovation in Laos : A Survey of Micro and Small Businesses in Vientiane 87
Table 5 Summary Statistics
Variable Obs. Mean Std. Dev. Min Max
improve 179 0.422 0.495 0 1
new to firm 179 0.688 0.464 0 1
new to market 179 0.700 0.469 0 1
age 179 41.1 10.4 22 90
male 179 0.441 0.498 0 1
higheredu 179 0.274 0.447 0 1
lhsedu 179 0.274 0.447 0 1
vocatedu* 179 0.296 0.458 0 1
uptoprimedu* 179 0.156 0.364 0 1
trader* 179 0.363 0.482 0 1
farmer 179 0.112 0.316 0 1
nonsoeworker 179 0.162 0.369 0 1
soeworker 179 0.095 0.294 0 1
firmage 179 11.8 9.3 1 59
food 179 0.416 0.494 0 1
lnfirmage 179 2.159 0.831 0 4.077
lnfirmage2 179 5.349 3.450 0 16.626
Source : Authors compiled from survey data.
Notes: 1. Monetary variables are denoted in 1000 LAK (Lao Kip, local currency)2. The asterisk (*) denotes the reference variables in the regressions.
3. The official exchange rate for 2016 was 8,129 LAK=USD 1.00.
Pakistan (Kurosaki and Khan, 2004); Laos (Onphanhdala and Suruga, 2010 ; Vixathep, 2017);
Vietnam (Santarelli and Tran, 2013 ; Vu, 2014 ; Vixathep et al., 2017)) and developed economies
(for Ireland (Pickels and O’Farrell, 1987); Netherlands (Van Praag and Cramer, 2001 ; Parker
and van Praag, 2006)).
In addition, human capital addresses the effect of work experience prior to the start-up. The
analysis compares work experience in farming, state-owned and non-state enterprises to the
reference group (trader). Statistical insignificance of coefficients for work experience implies
第218巻 第 5 号88
Table 6 Determinants of Innovation in MSEs (Vientiane)
Probit for Innovation (marginal effect)Improve New to Firm New to Market
Variables dy/dx dy/dx dy/dx
lnage �0.162 0.047 �0.252
(0.176) (0.167) (0.166)male (*) 0.102 �0.007 0.008
(0.079) (0.074) (0.073)higheredu (*) �0.058 0.122 0.182*
(0.125) (0.107) (0.096)lhsedu (*) �0.144 �0.016 0.038
(0.113) (0.111) (0.102)vocatedu (*) �0.065 0.017 0.118
(0.115) (0.106) (0.094)farmer (*) �0.018 �0.029 0.022
(0.125) (0.118) (0.107)soeworker (*) 0.163 0.1 0.101
(0.136) (0.118) (0.112)nonsoeworker (*) 0.041 �0.007 �0.05
(0.111) (0.1) (0.105)food (*) 0.093 �0.214*** �0.021
(0.079) (0.073) (0.074)lnfirmage 0.133 0.073 �0.184
(0.181) (0.166) (0.182)lnfirmage2 �0.011 �0.022 0.042
(0.042) (0.039) (0.042)Observations 179 179 179
Log-likelihood �117.03 �104.14 �103.78
Pseudo-R2 0.038 0.063 0.053
Notes : 1. Standard errors in parentheses.
2. *** p<0.01, ** p<0.05, * p<0.1
3. (*) dy / dx is for discrete change of dummy variable from 0 to 1.
4. Log-likelihood is Log-pseudolikelihood for the Probit regression.
that having experience as worker in the technical area do not seem to stimulate innovation in
SMEs in Vientiane.
Interestingly, food manufacturing firms in Vientiane are less likely to implement innovation
activity, as compared to the other type of manufacturing firms (non-food). The estimate for com-
paring food manufacturing firm to the other type of manufacturing firms is negatively significant
for innovation activity of introducing new product which is new to the firm (Table 6, Column 2).
The result implies that products in non-food manufacturing firms are of more varieties and more
flexible to adopt new changes comparing to products in food industry. However, other determi-
nants, such as entrepreneur age or gender, and firm’s characteristics (firm’s age), show no statis-
tical significance with all types of innovation activities.
5 Conclusions
The Lao economy has experienced high growth over the past decade. However, growth in the
past has been largely driven by the resource sector. In order to achieve sustainable growth the
manufacturing sector should be improved. SMEs have played an important role in promoting the
industrialization and generation of employment opportunities for the workforce. With a young
private sector, many of the SME owners are first-generation entrepreneurs, and their human
capital and social capital are the two most important factors that enhance their entrepreneurship.
This study addresses the essential role of education on innovation for micro and small busi-
nesses in Vientiane Capital as a case study. It re-confirms the positive relationship between
human capital and innovation, and emphasizes the importance of education for SME-sector devel-
opment as part of economic development.
In interpreting the results in this paper one should bear in mind the limitation that the explana-
tory variables in the empirical analysis only cover entrepreneur’s education and work experience,
and the firm age. Therefore, adding more variables of human and social capital, firm and industry
characteristics to the regression analysis would undoubtedly improve the results and findings.
This represents one of the main issues for the extension of the study.
Determinants of Innovation in Laos : A Survey of Micro and Small Businesses in Vientiane 89
第218巻 第 5 号90
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