Impact of formal and informal institutional constraints on innovation: firm-level evidence from Tunisia

Sdiri, Hanen (2022): Impact of formal and informal institutional constraints on innovation: firm-level evidence from Tunisia.

Abstract

Using data from the 2020 World Bank Enterprise Survey in Tunisia, we analyze the joint impact of formal and informal institutional constraints on the types of firms’ innovation. Moreover, we were interested in estimating the effect of the interaction between the two institutional constraints on the types of innovation. The main results of the econometric analysis show that the government system constraints have a positive and statistically significant effect on the likelihood of being an imitator. Furthermore, we show that the legal system constraints have a negative effect on the likelihood of being an innovator, but a positive effect on the probability of being an innovation pretender. We find a significant negative direct effect of commercial bribery on firm innovation. Moreover, the results show that the positive (negative) effect of the constraints from the government system (of the constraints from the legal system) on the probability of innovation will be alleviated by commercial bribery.

• Item Type: MPRA Paper
• Language: English
• Keywords: Innovation. Formal Institutions. Informal Institutions. Tunisian firms
• Subjects: D - Microeconomics > D7 - Analysis of Collective Decision-Making > D73 - Bureaucracy ; Administrative Processes in Public Organizations ; Corruption; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy; 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 > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights

References

Ayalew. MA and Xianzhi. Z (2019). The effect of financial constraints on innovation in developing countries: Evidence from 11 African countries. Asian Review of Accounting, 28, 3, 273-308.

Ayyagari, M., Demirgüç-Kunt, A., and 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.

Ayyagari, M., Demirgüç-Kunt, A., and Maksimovic, V. (2012). Financing of Firms in Developing Countries: Lessons from Research. Policy Research Working Paper; No. 6036.

Barasa, L., Kimuyu, P., Vermeulen, P., Knoben, J., and Kinyanjui, B. (2017). Institutions, resources and innovation in developing countries: A firm level approach. Research Policy, 46, 280–291.

Beltrán, A. (2016). Does corruption increase or decrease employment in firms? Applied Economics Letters, 23(5), 361–364.

Bound, J, David A. Jaeger and Regina M. B (1995). Problems with Instrumental Variables Estimation When the Correlation Between the Instruments and the Endogenous Explanatory Variable is Weak. Journal of the American Statistical Association, Vol. 90, No. 430. 443- 450.

Cameron, G. (1996) Innovation and economic growth. CEPDP (277). Centre for Economic Performance, London School of Economics and Political Science, London, UK. ISBN 0753003007.

Cefis, E., Marsili, O., (2011). Born to flip. exit decisions of entrepreneurial firms in hightech and low-tech industries. J. Evol. Econ. 21 (3), 2473–2498.

Crespi. F (2004). Notes on the Determinants of Innovation: A Multi-Perspective Analysis, Working Papers 2004.42, Fondazione Eni Enrico Mattei.

Davidson, R., and Mackinnon, J. G. (1993). Estimation and Inference in Econometrics. New York: Oxford University Press.

Dirienzo, C., & Das, J. (2014). Innovation and role of corruption and diversity: A cross-country study. International Journal of Cross-Cultural Management, 15(1), 51–72.

Doh. J, Rodrigues. S, Saka-Helmhout. A and Makhija. M (2017). International business responses to institutional voids. Journal of International Business Studies, 48, 293-307.

Goedhuys, M., Mohnen, P., and Ans Taha, T. (2016). Corruption, innovation and firm growth: Firm-level evidence from Egypt and Tunisia. Eurasian Business Review, 6(3), 299–322.

Horak, S., and Restel, K. 2016. A dynamic typology of informal institutions: Learning from the case of guanxi. Management and Organization Review, 12(3): 525–546.

Jaworski, B. J., & Kohli, A. K. 1993. Market orientation: Antecedents and consequences. Journal of Marketing, 57(3), 53–70.

Laursen, K., Masciarelli, F., and Prencipe, A. 2012. Region’s matter: How localized social capital affects innovation and external knowledge acquisition. Organization Science, 23(1): 177–193.

Lederman. D (2010). An international multilevel analysis of product innovation. Journal of international business studies, 41 (4), 606-619.

Neter, J., Kutner, M. H., Nachtsheim, C. J., and Wasserman, W. (1996). Applied linear statistical models, 4th Edition. New York: WCB McGraw-Hill.

Nguyen, A.N., Doan, Q, Nguyen, M.N and Ninh, T-N (2016). The impact of petty corruption on firm innovation in Vietnam. Crime, Law and Social Change, 65(4-5), 377-394.

Nguyen. B and Canh. NP (2021). Formal and informal financing decisions of small businesses. Small Business Economics, 57, 1545–1567.

Nguyen. TN (2020). The Effect of Bribery on Firm Innovation: An Analysis of Small and Medium Firms in Vietnam. Journal of Asian Finance, Economics and Business. 7 (5), 259 – 268.

North, D. C. 1990. Institutions, institutional change and economic performance. Cambridge: Cambridge University Press.

OECD, (2010). The OECD Innovation Strategy: Innovation to Strengthen Growth and Address Global and Social Challenges. Paris: OECD. available on https://www.oecd.org/sti/45326349.pdf.

Poddar. P, Sanjay Kumar Singh. KS (2020). Innovation and Corruption: Dissecting causal linkage using Patent Application information from India, The Singapore Economic Review, 1-27.

Rodriguez-Pose. A and Min. Z (2020). The cost of weak institutions for innovation in China. Technological Forecasting & Social Change 153, 119937.

Rodríguez-Pose. A, and Cataldo. M, Di (2015). Quality of government and innovative performance in the regions of Europe. Journal of Economic Geography, 15, 4, 673–706.

Romer. P (1994). The origins of endogenous growth. Journal of Economic Perspectives, 8(1), 3-22.

Rosenberg. N (2004). Innovation and Economic Growth. OECD. Available on https://learning.uonbi.ac.ke/courses/DOM610/document/innovations.pdf.

Saka. H. A, Chappin. M and Vermeulen. P (2020). Multiple Paths to Firm Innovation in Sub-Saharan Africa: How informal institutions matter. Organization Studies 41(11) 1551–1575.

Scott. RW and Meyer. JW (1994). Institutional Environments and Organizations: Structural Complexity and Individualism. SAGE publication.

Sdiri, H and Ayadi, M (2022). Does Innovation Foster or Mitigate the Corruption Obstacle? Firm-Level Evidence from Tunisia. Journal of the Knowledge Economy, 13, 367–386 (2022).

Semadeni, M., Withers, M.C., Certo, T.S., (2014). The perils of endogeneity and instrumental variables in strategy research: Understanding through simulations. Strategic Management Journal, 35, 1070–1079.

Sharma. CH and Mitra. A (2015). Corruption, governance and firm performance: Evidence from Indian enterprises. Journal of Policy Modeling, 37, 5, 835-851.

Tebaldi. E and Elmslie. B (2013). Does institutional quality impact innovation? Evidence from cross-country patent grant data. Applied Economics, 45(7), 887-900.

Varsakelis, Nikos C., (2006). Education, political institutions and innovative activity: A cross-country empirical investigation. Research Policy, 35(7), 1083-1090.

Wei S-J (1999). Haw taxing is corruption on international investors? Review of economics and statistics 81 (4), 1-12

Weng, C, Li, X, Yang, H and Ting, R (2021). Formal and Informal Institutions: The Independent and Joint Impacts on Firm Innovation. Management and Organization Review 17, 5, 918–967.

World Bank. (2020). World Bank Enterprise Surveys. http://www.enterprisesurveys.org

Zhang, D Zheng. W and Ning. L (2018). Does innovation facilitate firm survival? Evidence from Chinese high-tech firms, Economic Modelling, 1-11

Zhao. HJ, Kim. HS and Du. J (2003). The impact of corruption and transparency on foreign direct investment: an empirical analysis. Management International Review (43), 41-62

Zhu, Y., Wittmann, X., and Peng, M. W. (2012). Institution-based barriers to innovation in SMEs in China. Asia Pacific Journal of Management, 29(4): 1131–1142.