ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Innovations and Firm Performance in Informal Manufacturing Enterprises

Field-based Evidence from India

Based on an empirical analysis of 300 informal manufacturing firms in the National Capital Region of Delhi, the paper finds that innovative firms exhibit higher productivity growth and sales growth, underscoring the significance of the local market for informal manufacturing enterprises. This paper further provides empirical evidence on the firm-level innovations and their implications for the informal sector, which is the key source of employment, livelihood, and social transformation.


The authors would like express sincere gratitude to the referees and editor for their valuable comments and suggestions.

Most emerging economies, including India, have a large informal sector that significantly contributes to employment, gross domestic product (GDP), and ­economic development (Hart 2006; Sengupta et al 2009). By their nature, informal enterprises are unregistered and not directly regulated by the government. Their economic viability and sustainability are crucial for the overall economic development and welfare of most Indian workforce. In the face of ­globalisation and increased competition, the ability of these enterprises to survive and thrive depends on their innovation and competitiveness.

In the informal sector, innovation primarily occurs at the local level and is often specific to individual businesses or local contexts. These innovations respond to daily challenges and niche demands, utilising local resources (Hoffecker 2018). These local market innovations may not align with mainstream notions of innovation that emphasise radical or technological change (Cozzens and Sutz 2012; Kraemer-Mbula and Wunsch-Vincent 2016) and thus may not be recognised as an innovation in other parts of the world. The role of innovation in enhancing firm productivity has been widely acknowledged (Mairesse and Mohnen 2010). However, empirical evidence of its impact on firm performance in the informal sector remains limited and anecdotal (Shekar and Paily 2019).

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Updated On : 1st Aug, 2023
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