Firms’ Innovation Behaviour Under Constraints in Central and Eastern Europe

Abstract

Innovation is widely recognised as a key driver of productivity growth and long-term economic development, yet firms’ ability to innovate is strongly shaped by the quality of the business environment in which they operate. This paper investigates how perceived business constraints are associated with firms’ innovation behaviour in Central and Eastern Europe (CEE). Using firm-level data from the sixth round of the Business Environment and Enterprise Performance Survey (BEEPS), we analyse whether innovative and non-innovative firms differ in their perception of obstacles related to financial conditions, institutional quality, regulation and infrastructure. The analysis employs non-parametric Wilcoxon–Mann–Whitney tests to compare the distribution of perceived constraints across firms and explores heterogeneity between EU and non-EU economies. The results show that innovative firms tend to be more sensitive to financial, taxation and infrastructure-related constraints, while non-innovative firms more frequently report barriers associated with human capital limitations and organisational capabilities. Significant differences also emerge between EU and non-EU economies, reflecting the role of institutional development and market conditions in shaping innovation dynamics. Overall, the findings highlight the importance of an enabling business environment for fostering firm-level innovation and provide policy-relevant insights for strengthening innovation capacity in the CEE region.