| Abstract: | Using a sample of 475 firms in Ethiopia, this paper examines; 1) the impact of political connectedness on firm‟s innovation as measured by TPP; 2) the effect of access to finance on TPP innovations, 3) the effect of connectedness on firm‟s access to external finance in Ethiopia. The study also aimed at showing the extent of firm-level innovation and degree of access to external finance. The data was obtained from the WBES which is conducted in 2015 covering the period 2012 to 2014. The study used a standard probit model to show the relationship between political connectedness, access to finance and TPP innovations. The following five major results were obtained. First, firms that are political connection to the government are more likely to innovate than those who do not have connection. Second, firms that have access to finance are more innovative than those who do not have access to finance. Third, the result suggest that politically connected firm did not have special advantage to secure external loan. Finally, on average, 51% of sampled have introduced product innovation or process innovation during the last three years prior to the survey period. In Ethiopia, about 48% of sampled firms have access to finance during the survey periods. The policymakers should strength their relationship with business community and design and implement mechanisms that can improve firm‟s access to finance for external loan. |
