The overall aim of this thesis is to uncover the key determinants of innovation in New Zealand firms and consider some of their likely effects. In order to provide a broad perspective on New Zealand’s local innovation processes, a mixed method approach combining both quantitative and qualitative analysis was adopted to allow analysis of both empirical data and case study data. The quantitative part of analysis utilises the unique dataset developed by Statistics New Zealand, namely the prototype Longitudinal Business Database (LBD), and the qualitative analysis includes four in-depth company case studies which complement the regression analyses by uncovering the key patterns of innovation behaviour at the firm level. In summary, a number of conclusions have been drawn from the research. Firstly, firms experience considerably smaller positive size effect because of New Zealand’s unique firm demographics, and the small size has limited individual firm’s innovation opportunities. Secondly, firms’ ability to develop new technologies directly influences their innovative ability, which is highly dependent on the availability of funds and skills. Lastly, innovation in New Zealand has a very strong market focus, while technology suppliers such as universities and Crown Research Institutes only have a limited role in selected industries.