The Impact of Human Capital on Product Innovation
This research study is focused on the influence of human capital on innovation in SMEs. The human capital factors are the independent variables: employee’s education, employee’s development, and employee’s challenge, while the dependent variable is product innovation. Data of manufacturing and service firms in the economies of Africa and the Middle-East are taken from the World Bank Enterprise Survey database through a stratified random sampling. A sampled of 33,977 firms are observed in 53 countries. The methodology employed in this study is the quantitative research approach. A pairwise correlation, regression model and forecasting model are used for the analyses of the data. The findings from the analyses show satisfactory levels of significance with pvalues below 1% even though not all the Pearson correlation coefficients of the independent variables with the dependent variable are high. The goodness-of-fit, in terms of R-squared, Root MSE, and mean percentage error, found from the regression of human capital with product innovation is slightly poor. This is due to the loose relation between independent and dependent variables in real life and partly to the data available for this research. However, human capital acquired from skilled and formal training of employees has a more positive and significant influence on SMEs to innovate products. The findings have implications on managerial decisions and governmental policies. The results also give insight into the limitations of the research and areas for further investigations.