Human Capital and Innovation: An Analysis of Western Balkans

Abstract

The relationship between human capital and innovation has been mostly observed through the lens of the macroeconomic theory. However, recent studies started to apply the microeconomic approach, since the actual innovation takes place at a firm’s level. A number of studies tried to explain the determinants of innovation by taking different perspectives. One of the perspectives highlighted human capital (HC) as one of the key drivers behind the innovation. Therefore, this chapter addresses several important points. First, it explores the importance of human capital and innovation in the contemporary business environment. Second, it examines the mechanisms through which human capital contributes to innovation in firms by focusing on entrepreneurial mindset within a firm. Finally, since the existing research on human capital and innovation is very scarce when it comes to micro approach, this chapter analyzes these two constructs at a firm level by focusing on Western Balkan’s (WB) region with a slight comparison to some EU countries by utilizing the Enterprise survey developed by World Bank Group in 2013.