Learning and Product Innovation Performance in Informal Enterprises: Evidence from Urban Ghana

Avenyo, Elvis Korku (2021): Learning and Product Innovation Performance in Informal Enterprises: Evidence from Urban Ghana.

Abstract

Recognising that enterprises learn how to produce goods and services in the informal economy, this paper examines the effect of two learning processes (apprenticeship and ‘formal interactions’) on the product innovativeness of informal enterprises in Ghana. Employing unique survey data on 513 enterprises and the Type II Tobit model, our analyses reveal that apprenticeship, on the one hand, enhances the technological capability of enterprises leading to product innovativeness, while competitive formal interactions, on the other hand, provide important market feedback that enhances the innovativeness of enterprises. The paper concludes by discussing the policy implications of these findings.

• Item Type: MPRA Paper
• Language: English
• Keywords: Innovation; Informal Sector; Learning; SMEs; Ghana; sub-Saharan Africa (SSA)
• Subjects: D - Microeconomics > D2 - Production and Organizations > D22 - Firm Behavior: Empirical Analysis; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L25 - Firm Performance: Size, Diversification, and Scope; L - Industrial Organization > L5 - Regulation and Industrial Policy > L53 - Enterprise Policy; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O12 - Microeconomic Analyses of Economic Development; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors ; Shadow Economy ; Institutional Arrangements; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O31 - Innovation and Invention: Processes and Incentives

References

Acemoglu, D., & Pischke, J. S. (1998). Why do firms train? Theory and evidence. Quarterly Journal of Economics, 113(1), 79–119.

Aggarwal, A., Hofmann, C. & Phiri, A. (2010). A study on informal apprenticeship in Malawi. Employment Working Paper No. 9. International Labour Office: Geneva, Switzerland.

Aghion, P., Bloom, N., Blundell, R., Griffith, R., & Howitt, P. (2005). Competition and innovation: An inverted-U relationship. Quarterly Journal of Economics, 120(2), 701–728.

Amemiya, T. (1985). Advanced econometrics. Harvard University Press.

Apanasovich, N., Heras, H. A., & Parrilli, M. D. (2016). The impact of business innovation modes on SME innovation performance in post-Soviet transition economies: The case of Belarus. Technovation, 57, 30-40.

Avenyo, E. K., Konte, M., & Mohnen, P. (2019). The employment impact of product innovations in sub-Saharan Africa: Firm-level evidence. Research Policy, 48(9), 103806.

Avenyo, E.K, Konte, M., & Mohnen, P. (2020). Product innovation and informal market competition in sub-Saharan Africa. Journal of Evolutionary Economics, 1-33. https://doi.org/10.1007/s00191-020-00688-2.

Avenyo, E. K., Francois, J. N., & Zinyemba, T. P. (2021). On gender and spatial gaps in Africa’s informal sector: Evidence from urban Ghana. Economics Letters, 199, 109732.

Avenyo, E. K. Informal sector innovation in Ghana: Data set and descriptive analysis. UNU-MERIT Working Papers Number 30. Retrieved from http://www.merit.unu.edu/publications/wppdf/2018/wp2018-030.pdf.

Ayyagari, M., Demirgüç-Kunt, A., & Maksimovic, V. (2011). Firm innovation in emerging markets: The role of finance, governance, and competition. Journal of Financial and Quantitative Analysis, 46(6), 1545–1580.

Barr, A. (1999). Do SMEs network for growth? In K. King & S. McGrath (Eds.), Enterprise in Africa – Between poverty and growth (pp. 121–131). Rugby, UK: Practical Action.

Bas, D. (1989). On-the-job training in Africa. International Labour Review, 128(4), 485–496.

Becker, G. S. (1962). Investment in human capital: A theoretical analysis. Journal of Political Economy, 70(5), 9–49.

Bell, M. & Albu, M. (1999). Knowledge systems and technological dynamism in industrial clusters in developing countries. World Development, 27(9), 1715–1734.

Benjamin, N., & Mbaye, A. A. (2015). Informality, growth, and development in Africa. In C. Monga & J. Y. Lin (Eds.), The Oxford handbook of Africa and economics: Context and concepts (pp. 620–635) Oxford: Oxford University Press.

Breyer (2006). Financial Arrangements in Informal Apprenticeships: Determinants and Effects – Findings from Urban Ghana. International Labour Organisation Working Paper No. 49. International Labour Office: Geneva, Switzerland.

Bull, C., Daniels, S., Kinyanjui, M., & Hazeltine, B. (2016). A Study of the informal metalworking sector in Nairobi. In E. Kraemer-Mbula & S. Wunsch-Vincent (Eds.), The informal economy in developing nations: Hidden engine of innovation? (pp. 100–145). Cambridge, UK: Cambridge University Press.

Charmes, J., Gault, F., & Wunsch-Vincent, S. (2016). Formulating an agenda for the measurement of innovation in the informal economy. In E. Kraemer-Mbula & S. Wunsch-Vincent (Eds.), The informal economy in developing nations: Hidden engine of innovation? (pp. 336–370). Cambridge, UK: Cambridge University Press.

Chen, M. A. (2006). Rethinking the informal economy: Linkages with the formal economy and the formal regulatory environment. In B. Guha-Khasnobis, R. Kanbur & E. Ostrom (Eds.), Linking the formal and informal economy: Concepts and policies (pp. 75–92). Oxford, UK: Oxford University Press.

Classen, N., Carree, M., Van Gils, A., & Peters, B. (2014). Innovation in family and non-family SMEs: An exploratory analysis. Small Business Economics, 42(3), 595–609.

Cohen, W. M. & Levinthal, D. A. (1989). Innovation and learning: The two faces of R & D. Economic Journal, 99(397), 569–596.

Cohen, W. M., & Levinthal, D. A. (1990). Absorptive capacity: A new perspective on learning and innovation. Administrative Science Quarterly, 35(1), 128–152.

Cozzens, S., & Sutz, J. (2014). Innovation in informal settings: reflections and proposals for a research agenda. Innovation and Development, 4(1), 5–31.

Dawson, J. (1992). The relevance of the flexible specialisation paradigm for small-scale industrial restructuring in Ghana. IDS Bulletin, 23(3), 34–38.

De Beer, J., Armstrong, C., Schonwetter, T., & Oguamanam, C. (Eds.) (2014). Innovation and intellectual property: Collaborative dynamics in Africa. Cape Town, South Africa: UCT Press.

De Beer, J., Fu, K., & Wunsch-Vincent, S. (2013). The informal economy, innovation and intellectual property: Concepts, metrics and policy considerations. World Intellectual Property Organization, Economics and Statistics Division, Working Paper No. 10. Retrieved from http://www.wipo.int/export/site.

Dosi, G., Freeman, C., Nelson, R., Silverberg, G., Soete, L. (Eds.), 1988. Technical Change and Economic Theory. Pinter, London, UK.

Essegbey, G. O., & Awuni, S. (2016). Herbal medicine in the informal sector of Ghana. In E. Kraemer-Mbula & S. Wunsch-Vincent (Eds.), The informal economy in developing nations: Hidden engine of innovation? (pp. 194–231). Cambridge, UK: Cambridge University Press.

Fagerberg, J., Mowery, D.C., Nelson, R.R. (Eds.), 2005. The Oxford Handbook of Innovation. Oxford University Press, Oxford, UK.

Fitjar, R. D., & Rodríguez-Pose, A. (2013). Firm collaboration and modes of innovation in Norway. Research policy, 42(1), 128-138.

Frazer, G. (2006). Learning the master’s trade: Apprenticeship and human capital in Ghana. Journal of Development Economics, 81(2), 259–298.

Fu, W., Diez, J. R., & Schiller, D. (2013). Interactive learning, informal networks and innovation: Evidence from electronics firm survey in the Pearl River Delta, China. Research Policy, 42(3), 635-646.

Fu, X., Zanello, G., Owusu Essegbey, G., Hou, J., & Mohnen, P. (2014). Innovation in low income countries: A survey report. Oxford, UK: OMDC. Retrieved from https://www.gov.uk/dfid-research-outputs/innovation-in-low-incomecountries-a-survey-report#citation.

Gebreeyesus, M., & Mohnen, P. (2013). Innovation performance and embeddedness in networks: Evidence from the Ethiopian footwear cluster. World Development, 41(1), 302–316.

Goedhuys, M. (2007). Learning, product innovation, and firm heterogeneity in developing countries: Evidence from Tanzania. Industrial and Corporate Change, 16(2), 269–292.

Guha-Khasnobis, B., Kanbur, R., & Ostrom, E. (2006). Beyond formality and informality. In B. Guha-Khasnobis, R. Kanbur & E. Ostrom (Eds.), Linking the formal and informal economy (pp. 1–18). Oxford: Oxford University Press.

Hart, K. (2006). Bureaucratic form and the informal economy. In B. Guha-Khasnobis, R. Kanbur & E. Ostrom (Eds.), Linking the formal and informal economy (pp. 21–35). Oxford: Oxford University Press.

Hausman, A. (2005). Innovativeness among small businesses: Theory and propositions for future research. Industrial Marketing Management, 34(8), 773–782.

Heckman, J. (1979). Sample Selection Bias as a Specification Error. Econometrica, 47(1), 153–161.

International Labour Organisation (ILO). (2013). Youth unemployment rate estimates and projections by region 2007–2017. Technical report. Geneva: International Labour Organization.

International Labour Organisation (ILO). (2018). Women and Men in the Informal Economy: A Statistical Picture Third Edition. International Labour Organization, Geneva. Retrieved from https://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/documents/ publication/wcms_626831.pdf

Jensen, M. B., Johnson, B., Lorenz, E., Lundvall, B. Å., & Lundvall, B. A. (2007). Forms of knowledge and modes of innovation. The learning economy and the economics of hope, 155.

Kawooya, D. (2014). Informal–formal sector interactions in automotive engineering, Kampala. In J. De Beer, C. Armstrong, C. Oguamanam & T. Schonwetter (Eds.), Innovation & intellectual property: Collaborative dynamics in Africa (pp. 59–76). Cape Town, South Africa: UCT Press.

Konte, A., & Ndong, M. (2012). The informal ICT sector and innovation processes in Senegal. African Journal of Science, Technology, Innovation and Development, 4(3), 61–97.

Kraemer-Mbula, E., & Wamae, W. (2010a). Adapting the innovation systems framework to Sub-Saharan Africa. In E. Kraemer-Mbula & W. Wamae (Eds.), Innovation and the development agenda (pp. 65–90). OECD/IDRC.

Kraemer-Mbula, E., & Wamae, W. (2010b). Innovation and the development agenda. Paris and Ottawa: OECD and IDRC.

Kraemer-Mbula, E., & Wamae, W. (2010c). Key issues for innovation and development. In W. Wamae & E. Kraemer-Mbula (Eds.), Innovation and the development agenda (pp. 29–38). OECD/IDRC.

Kraemer-Mbula, E., & Wamae, W. (2010d). The relevance of innovation systems to developing countries. In E. Kraemer-Mbula & W. Wamae (Eds.), Innovation and the Development Agenda (pp. 39–64). OECD/IDRC.

Kraemer-Mbula, E. (2016). Informal manufacturing of home and personal care products in South Africa. In E. Kraemer-Mbula & S. Wunsch-Vincent (Eds.), The informal economy in developing nations: Hidden engine of innovation? (pp. 146–193). Cambridge, UK: Cambridge University Press.

Kraemer-Mbula, E., & Konte, A. (2016). Innovation policy and the informal economy: Toward a new policy framework. In E. Kraemer-Mbula & S. Wunsch-Vincent (Eds.), The informal economy in developing nations: Hidden engine of innovation? (pp. 293–331). Cambridge, UK: Cambridge University Press.

Kraemer-Mbula, E., & Tau. V. (2014). Country study on innovation, intellectual property and the informal economy: Informal manufacturers of home and personal care products in South Africa. Committee on Development and Intellectual Property (CDIP) Thirteenth Session, 19–23 May, Geneva. Retrieved from http://www.wipo.int/edocs/mdocs/mdocs/en/cdip_13/cdip_13_inf_4.pdf.

Kraemer-Mbula, E. & Wunsch-Vincent, S. (2016) The informal economy in developing nations: Hidden engine of innovation? Cambridge, UK: Cambridge University Press.

La Porta, R., & Shleifer, A. (2008). The unofficial economy and economic development. Brookings Papers on Economic Activity, 39(2 Fall), 275–363.

La Porta, R., & Shleifer, A. (2014). Informality and development. Journal of Economic Perspectives, 28 (3), 109-126.

Lall, S. (2000). Skills, competitiveness and policy in developing countries. QEH Working Paper Series Number 46. Retrieved from https://www.qeh.ox.ac.uk/sites/www.odid.ox.ac.uk/files/www3_docs/qehwps46.pdf.

Legros, D., & Galia, F. (2011). Are innovation and R&D the only sources of firms’ knowledge that increase productivity? An empirical investigation of French manufacturing firms. Journal of Productivity Analysis, 38(2), 167–181.

Leliveld, A., & Knorringa, P. (2018). Frugal innovation and development research. European Journal of Development Research, 30(1), 1–16.

Lundvall, B.-Å. (1988). Innovation as an interactive process: From user-producer interaction to the national system of innovation. In G. Dosi, C. Freeman, R. Nelson, G. Silverberg, & L. Soete (Eds.), Technical change and economic theory (pp. 349–369). London: Pinter Publishers.

Mahemba, C. M., & Bruijn, E. J. (2003). Innovation activities by small and medium-sized manufacturing enterprises in Tanzania. Creativity and Innovation Management, 12(3), 162–173.

Mairesse, J., & Mohnen, P. (2002). Accounting for innovation and measuring innovativeness: An illustrative framework and an application. American Economic Review, 92(2), 226–230.

Malerba, F. (1992). Learning by firms and incremental technical change. Economic Journal, 102(413), 845–859.

McCormick, D., & Atieno, R. (2002). Linkages between small and large firms in the Kenyan food processing sector. In M. P. Van Dijk & H. Sandee (Eds.), Innovation and small enterprises in the Third World (pp. 223–248). Cheltenham, UK: Edward Elgar Publishing.

McDade, B. E., & Malecki, E. J. (1997). Entrepreneurial networking: Industrial estates in Ghana. Tijdschrift voor economische en sociale geografie, 88(3), 262–272.

Mincer, J. (1993). Studies in Human Capital. Cheltenham, UK: Edward Elgar.

Murphy, J. T. (2002). Networks, trust, and innovation in Tanzania’s manufacturing sector. World Development, 30(4), 591–619.

Nubler, I., Hofmann, C., & Greiner, C. (2009). Understanding informal apprenticeship – Findings from empirical research in Tanzania. Employment Working Paper No. 32. International Labour Office: Geneva, Switzerland.

Organisation for Economic Co-operation and Development (OECD), & Eurostat (2005). Oslo Manual. Guidelines for Collecting and Interpreting Innovation Data (3rd ed.). Paris: OECD Publishing.

Oyelaran-Oyeyinka, B., & Lal, K. (2006). Learning new technologies by small and medium enterprises in developing countries. Technovation, 26(2), 220–231.

Robson, P. J. A., Haugh, H. M., & Obeng, B. A. (2009). Entrepreneurship and innovation in Ghana: enterprising Africa. Small Business Economics, 32(3), 331–350.

Romijn, H. (2002). Small enterprise development in developing countries: Innovation or acquisition of technological capability? In M. P. Van Dijk, & H. Sandee (Eds.), Innovation and small enterprises in the Third World (pp. 15–47). Cheltenham, UK: Edward Elgar.

Roodman, D. (2011). Fitting fully observed recursive mixed-process models with cmp. Stata Journal, 11(2), 159–206.

Schumpeter, J.A., 1934. The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle. Harvard University Press, Cambridge, MA.

Sindzingre, A. (2006). The relevance of the concepts of formality and informality: a theoretical appraisal. In B. Guha-Khasnobis, R. Kanbur, & E. Ostrom (Eds.), Linking the formal and informal economy (pp. 58–74). Oxford: Oxford University Press.

Sorescu, A. B., Chandy, R. K., & Prabhu, J. C. (2003). Sources and financial consequences of radical innovation: Insights from pharmaceuticals. Journal of Marketing, 67(4), 82–102.

Teal, F., Monk, C., & Sandefur, J. (2008). Does doing an apprenticeship pay off? Evidence from Ghana. Centre for the Study of African Economies, Working Paper Series, No. 08. Retrieved from http://www.csae.ox.ac.uk/workingpapers/pdfs/200808text.pdf.

Ulyssea, G. (2018). Firms, informality, and development: Theory and evidence from Brazil. American Economic Review, 108 (8): 2015-47.

Van Dijk, M. P. (2002). Innovation and small enterprise development examples from Burkina Faso, Ghana and Zimbabwe. In M. P. Van Dijk & H. Sandee (Eds.), Innovation and small enterprises in the Third World (pp. 123–140). Cheltenham, UK: Edward Elgar.

Van Dijk, M. P., & Sandee, H. (2002). Innovation and small enterprise development in Developing Countries. In M. P. Van Dijk, & H. Sandee (Eds.), Innovation and small enterprises in the Third World (pp. 1–11). Cheltenham, UK: Edward Elgar.

Velenchik, A. D. (1995). Apprenticeship contracts, small enterprises, and credit markets in Ghana. World Bank Economic Review, 9(3), 451–475.