Sustainability, Innovation and Export Performance: Evidence from Manufacturing Firms in Nepal

Abstract

Integrating sustainability into business strategies is critical for firms in developing economies to achieve resilience and competitiveness. However, empirical evidence remains scarce regarding whether such practices drive innovation or act as a financial burden. This study employs a quantitative approach to assess whether sustainability practices in resource-constrained economies serve as a catalyst for or barrier to innovation and international competitiveness using the World Bank Enterprise Survey 2023 data based on 211 manufacturing firms in Nepal. Findings reveal that social sustainability, specifically female representation and labour stability, significantly increases the likelihood of being an innovative firm by 12.1 and 17.7 percentage points, respectively. However, being innovative reduced a firm’s likelihood of direct exporting by 9.4 percentage points, highlighting structural barriers to internationalisation. The findings suggest that sustainability functions more as a compliance cost than a competitive advantage, underscoring the need for integrated industrial and innovation policies in developing economies.