The purpose of this paper is to investigate the innovation activities of Chilean firms’ by using
micro level data. Previous studies showed research gap related to micro level analysis of the
Chilean SMEs. For the first time, multiple proxies have been used as dependent variables
(product/process innovations and patent application/spending), which is neglected by the past
studies. A micro level data has been obtained from the World Bank, Enterprise Survey on
696 Chilean SMEs. Bivariate probit estimation method has been used. The results showed
that SMEs are less likely to apply for patents and introduce product innovations. This
outcome indicates that Chilean SMEs face resource constraint in terms of introducing product
innovations and applying for patents. In addition, SMEs undertaking R&D and making
network ties with other research institutions are more likely to introduce patents and product
innovations. Similarly, SMEs that are engage in quality programs are more likely to spend on
patents. Lastly, SMEs with public support for innovation activities positively influence the
patent application. Findings imply that SMEs investment in knowledge based assets (e.g.,
R&D, networks and quality methods) accelerate their innovation output. Policy makers
should not only provide financial incentives (R&D subsidies) to SMEs but also encourage
their strong ties with research institutions for higher innovation output.