Human resource policies and firm innovation: The moderating effects of economic and institutional context

Abstract

This paper examines the effects of human resource (HR) policies on firm innovation. Specifically, I argue that firms who implement policies to stimulate job autonomy and performance-based pay will be more likely to innovate, as proxied by investments in R&D. In addition, I contend that the institutional (i.e., labour regulations) and competitive (i.e., pressure from imports) contexts in which a firm operates will affect the relationship between HR policies and innovation, albeit in different ways. These hypotheses are tested using a dataset of more than 900 firms across a heterogenous set of 12 countries, majority of which are emerging markets. I find strong empirical backing for the role of both job autonomy and performance-based pay policies in stimulating firm innovation, and partial support for the moderating effects of institutional and competitive contexts of this relationship.