Joint innovation in transition economies: complementarity, additivity, or substitutability?

This study examines the combined impact of process and product innovation on firm performance in transition countries, with a particular focus on non-EU contexts. Exploiting data from the World Bank Enterprise Surveys (2018–2020), we implement a two-stage econometric approach to address potential endogeneity, instrumenting innovation combinations using external credit access. Our findings indicate that product innovation significantly improves firm performance, whereas process innovation alone has no significant effect. Firm adopting both product and process innovation outperform non-innovators, although evidence of complementarity is mixed. In baseline OLS models, joint adoption is associated with super-additive effects, but in IV specifications the combined impact is not larger than the sum of individual contributions, suggesting additivity effects when endogeneity is accounted for. Overall, the findings indicate that innovation strategies in transition economies enhance performance, but their effectiveness depends on the identification strategy and institutional context.