On the basis of these answers, firms that have introduced a new product in the last three years regard all aspects of their business environment as a greater constraint on their operations than firms that have not engaged in product innovation.

This can be seen from the fact that all business environment constraints lie above the 45-degree line in Chart 3.9. The differences between the views of innovative and non-innovative firms are especially large when it comes to skills, corruption and customs and trade regulations (with these dots lying furthest away from the 45-degree line). Inadequate skills and corruption, in particular, are perceived to be among the main constraints for all firms, and they are even greater constraints for innovative firms. (These are located towards the top right of the chart and are marked in red.) In contrast, customs and trade regulations (in the bottom left of the chart, marked in orange) are not major concerns at the level of the economy as a whole, partly because only a relatively small number of firms import production inputs or export their products directly. However, customs and trade regulations specifically affect innovative firms, as the introduction of new products and technologies is often dependent on imported inputs and the ability to tap export markets.14

Innovative firms are also significantly affected by a number of other aspects of the business environment (located to the right of the chart, but close to the 45-degree line, and marked in yellow). However, these tend to constrain innovative and non-innovative firms alike, with only a slightly larger impact on innovative firms. These include access to finance, the practices of competitors in the informal sector, tax administration and, to a lesser degree, electricity.

The extent to which the various features of the business environment affect all firms and innovative firms differs from region to region (see Chart 3.10). In central Europe and the Baltic states (CEB), for instance, the differences between the responses of innovative and non-innovative firms are relatively small (in other words, all dots lie close to the 45-degree line). This suggests that the business environment in the CEB region is less hostile towards innovation. However, a number of aspects of the business environment remain significant obstacles to the growth of innovative and non-innovative firms alike, including access to finance, tax administration and inadequate skills.

In south-eastern Europe (SEE) corruption stands out as an issue, constraining the growth of all firms, but particularly affecting those that innovate. Inadequate skills also particularly affect innovative firms, while both innovative and non-innovative firms frequently complain about the actions of competitors in the informal sector, access to finance and electricity.

The differences between the views of innovative and non-innovative firms are larger in eastern Europe and the Caucasus (EEC), Central Asia and Russia. While corruption and inadequate skills strongly affect all firms, this negative impact is felt most strongly by firms that innovate. In addition, innovative firms feel constrained by a number of aspects of the business environment that other firms regard as being less binding. These include customs and trade regulations, telecommunications and business licensing and permits, all of which are likely to be important inputs in the innovation process.

The BEEPS V and MENA ES results suggest that improvements in the provision of infrastructure, further deregulation in the area of licences and permits and improvements in the quality of government services can specifically help innovative firms. Table 3.2 summarises innovative firms’ perception of the business environment in the various regions.