Institutional Learning and Change Initiative

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Abstract:

During the last decade, there has been wide agreement on the importance of innovations on economic performance of firms. At the same time, rapidly increasing literature has suggested that the development of innovations is affected by the actors' social relations and social capital. In this paper, we at first make an effort to clarify the concept of social capital. We suggest that to clarify the causality of social capital, it is reasonable to distinguish between the sources, consequences and mediating mechanisms of social capital. Secondly, we analyse the importance of social capital on the innovative activity of Finnish SMEs. According to analysis, social capital, as wide and active participation in network cooperation, correlates statistically significantly with the overall innovation activity of a firm. Social capital seems to enhance innovations by enhancing knowledge spillovers. The firms that are active in their network cooperation gain more important information from external sources, such as other firms and public institutions.