This paper (a joint collaboration between IDBInvest and FinDev Canada) explores the link between innovation and firm performance in several developing countries using data from Compete Caribbean’s Innovation, Firm Performance and Innovation firm-level survey (IFPG). In this context, innovation is broadly defined as the introduction of a new or significantly improved product or process. This study provides evidence that innovation is an important factor for driving firm performance (e.g. revenue, productivity and wages) and in turn private sector development. The findings suggest that the main obstacles to innovation among businesses include lack of human capital (e.g. skilled employees), and small markets. It concludes by offering recommendations on how Development Finance Institutions (DFIs) and Multi-lateral Banks can work to stimulating more innovation in developing markets.