Network alliances and firms’ performance: a panel data analysis of Pakistani SMEs

Empirical studies shows that SMEs are characterized by budget constraints and are reluctant to invest in innovation activities such as undertaking R&D, taking out patents, and hiring highly qualified research staff. This paper suggests that SMEs’ can adopt network alliances to minimize their resource constraints. SMEs’ network alliances such as joint ventures, R&D cooperation and firms’ co-located in the industrial zones positively influence the firms’ labour productivity and innovation performance. In addition, SMEs are engaged in product and process innovation, quality standards and management experience have a positive impact on the firm’s labour productivity and innovation performance. To the best of my knowledge, hardly any empirical study is carried out to analyze the Pakistani SMEs using unbalance panel data. This research paper has used 2 year unbalanced panel data (2002 and 2007) on 391 Pakistani manufacturing SMEs. Overall, two models have been used with generalized least square estimation and probit analysis using the random effects.