Innovation performance and embeddedness in networks: evidence from the Ethiopian footwear cluster

This study focuses on innovation in a cluster of informal shoemaking firms in Ethiopia - namely the Mercato footwear cluster. It examines how differently those firms are embedded in networks and how heterogeneous they are in absorptive capacity, and how this heterogeneity affects their innovation performance. Business interactions with buyers, suppliers and other producers are the major channels through which knowledge flows into the cluster. These business networks are mainly built on trust and long-term relationships and tend to be selective. The study reveals that despite homogeneity in social background the firms in the cluster behave and perform differently. Based on econometric analysis we document a positive and strong effect of local network position and absorptive capacity on innovation performance.

Key words: industrial clusters, networks, innovation performance, informal sector, Africa, Ethiopia

JEL: O31