Innovation, Gender Diversity, and Labor Productivity: Evidence From Moroccan Small and Medium‐Sized Enterprises

ABSTRACT This paper aims to analyze how innovation and gender diversity combine to affect labor productivity within the context of Moroccan SMEs, using data from the World Bank Enterprise Surveys and the Enterprise Survey Follow‐up on COVID‐19. Several studies have shown that female‐led firms, though much more reluctant to innovate than their male counterparts, performed equally in productivity compared to firms with male owners when they eventually did so. Using the CES production function and System GMM analyses, we deal with the endogeneity problem and show coherent results. Our results indicate that female‐led firms have a lower propensity to engage in innovation activities. However, when they do, their level of productivity is very close to that of their male‐led counterparts. In addition, we found that nearly 70% of the gap in productivity levels can be attributed to higher technological levels. Conclusions stress the importance of the policy recommendations, where the focus is made on increasing the support to women entrepreneurs, improving the conditions for financing the companies, as well as providing specific incentives and training.