The Impact of State Innovation Policies on Innovation Quality in the Western Balkan Countries: The Role of Firms’ International Orientation

Abstract

Innovation has become a central driver of competitiveness, technological upgrading, and sustainable economic development, particularly within transition economies facing institutional constraints and increasing global competitive pressures. Although prior studies have extensively examined the relationship between state innovation policies and firms’ innovation performance, limited attention has been devoted to innovation quality and the conditions under which public innovation support generates higher-quality innovation outcomes in the Western Balkan region.

Drawing upon institutional theory and the international business literature, this study investigates the impact of state innovation policies on innovation quality in the Western Balkan countries, with particular emphasis on the moderating role of firms’ international orientation. The study argues that firms with stronger international orientation are better positioned to utilise public innovation support effectively due to their greater exposure to international markets, advanced technological standards, external knowledge networks, and competitive learning opportunities.

The empirical analysis is based on firm-level data obtained from the World Bank Enterprise Surveys (WBES) covering six Western Balkan countries: Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia. Using regression analysis and moderation modelling, the study examines the direct effects of state innovation policies and international orientation on innovation quality, as well as the interaction effect between these variables.

The findings demonstrate that state innovation policies positively influence firms’ innovation quality. Furthermore, firms’ international orientation exerts a positive and statistically significant effect on innovation quality. Most importantly, the results reveal that international orientation significantly strengthens the positive relationship between state innovation policies and innovation quality, indicating that internationally oriented firms benefit more effectively from public innovation support in generating technologically sophisticated and commercially valuable innovations.

This study contributes to the innovation policy and international business literature in several important ways. First, it extends the discussion of innovation quality to the underexplored context of the Western Balkans. Second, it highlights the conditional role of firms’ international orientation in enhancing the effectiveness of state innovation policies. Third, it provides important policy implications for transition economies seeking to strengthen innovation capability, technological upgrading, and international competitiveness through more effective alignment between public innovation support and firms’ international engagement strategies.