Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/338596 
Authors: 
Year of Publication: 
2026
Series/Report no.: 
GLO Discussion Paper No. 1723
Publisher: 
Global Labor Organization (GLO), Essen
Abstract: 
Artificial intelligence (AI) is increasingly recognised as a key driver of business innovation, yet its adoption among small and medium-sized enterprises (SMEs) varies considerably. This study examines whether AI Capital, defined as AI-related knowledge, skills and capabilities, is associated with business innovation among SMEs in England. Using a two-wave longitudinal panel dataset comprising 504 observations from SMEs collected in 2024 and 2025, the study develops and validates a 45-item AI Capital of Business scale. Business innovation is measured across five dimensions: product and service innovation, process innovation, technology adoption, market and customer engagement, and organisational culture and strategy. Regression models, including pooled OLS, Random Effects, and Fixed Effects specifications, are employed. The findings reveal a robust positive association between AI Capital and business innovation across all model specifications. This association holds across all business innovation dimensions and remains consistent for SMEs with differing levels of financial performance, size, and operational maturity. Each component of AI Capital independently exhibits a positive association with business innovation outcomes. The results highlight the central role of AI Capital in enabling SMEs to translate AI adoption into tangible business innovation. From a policy perspective, the findings indicate the value of targeted interventions that prioritise AI upskilling, organisational capability development, and accessible support mechanisms to promote inclusive and sustainable AI-driven business innovation among SMEs.
Subjects: 
Artificial Intelligence
Artificial Intelligence Capital
Business Innovation
Innovation
SMEs
JEL: 
O31
O33
O32
L26
L25
M15
D83
J24
O14
O39
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.