ABSTRACT

Innovation is one of the main drivers of economic growth and thus central to the welfare of nations. It is the result of a complex process of 'creative destruction', in which firms competing with each other seek to gain a competitive edge over their competitors through innovations and a subsequent process of imitation, adaptation, and diffusion of knowledge. This chapter describes the database, the World Bank Enterprise Survey for Indonesia 2015 and looks at the innovation behaviour of Indonesian firms. It first addresses the evidence on innovation behaviour of firms for various types of innovations with a particular focus on differences by firm size. The chapter then provides a cluster analysis of the innovating firms and shows their heterogeneity with regard to their innovation behaviour. Finally, it analyses the determinants of innovation by Indonesian firms and the obstacles to innovation.