Abstract

Innovation is a key element of industrialisation and catch-up in developing countries, however its diffusion and adoption is neither costless nor unconditional. In the past decades development indicators have improved in most Low-income Countries (LICs) and the concept of innovation has shifted from being an end of development to a means of it. In this study we reviewed the state of art of the research in the diffusion of innovation in the private sectors (industry and services) in LICs and identified gaps for future research. From an initial sample of 7,385 studies, the systematic review protocol yielded 81 studies which provided case studies and empirical evidence to answer three questions: i) What are the barriers to innovation creation and diffusion in LICs? ii) What are the channels of innovation diffusion within LICs? iii) What are the channels of diffusion of external innovation to LICs?

We found that innovation in LICs is not simply about creation or adoption of new technologies; capacity for innovation is embedded in and constituted by dynamics between geographical, socio-economic, political and legal subsystems. Several factors seem to be predominant barriers to innovation across different settings and geographical areas. Weak education systems, unstable political authority, fragile legal systems, limited financial resources, inadequate infrastructure, and cultural and linguistic distances are all factors that impede the diffusion of innovations. The diffusion of knowledge within LICs is facilitated by instituting industrial clusters, strengthening the link between public (universities) and private sectors, and empowering people living at the Base of the Pyramid (BOP). Instead, knowledge diffusion to developing countries is conditioned by the degree of openness of an economy, host-country characteristics, such as the presence of a network of expertise and remittances from migrants, and policies that can foster Foreign Direct Investments (FDI) and international trade.  We contextualize the findings from the review in the current theoretical framework of diffusion of innovations, and we emphasize how the institutional context typical of LICs impacts the diffusion itself. Finally, we highlight avenues for new research in the last section.