Impact of financial support on the intensity of innovation practices within SMEs – Case of Morocco

Abstract

Innovation is at the heart of economic growth and societal progress. It’s a driving force that keeps businesses competitive and economies thriving. However, Moroccan SMEs often struggle with financial barriers that limit their innovative capabilities. Despite government initiatives offering subsidies and guarantee schemes, the effectiveness of these mechanisms in fostering innovation remains uncertain. The aim of this study is to examine the impact of public financial support on innovation intensity within Moroccan SMEs, addressing a gap in understanding how direct and indirect financial support influence product, process, and technological innovation. Data were collected from a survey of 133 SMEs in the Casablanca-Settat region, gathering insights into innovation practices, public support received, and firm characteristics. The Ordered Probit regression model was employed to assess the determinants of innovation intensity, providing a rigorous analysis of how subsidies and guarantee schemes impact innovation while accounting for firm-specific factors. Results indicate that guarantee schemes have a consistently positive and significant effect on all forms of innovation, demonstrating their effectiveness in reducing financial risk and enabling firms to invest in innovative projects. Conversely, subsidies show limited and occasionally negative impacts, suggesting a misalignment with SMEs’ specific needs. Our findings suggest that expanding guarantee schemes could significantly enhance innovation in SMEs. However, subsidies need to be restructured to better target innovation, potentially through R&D grants and innovation vouchers. Policies that promote workforce development are also essential, as the research’s findings prove that employees’ training directly contributes to a firm’s innovation capacity.