IDEAS home Printed from https://ideas.repec.org/a/kap/jincot/v22y2022i3d10.1007_s10842-022-00388-6.html
   My bibliography  Save this article

Innovations as a Response to Shadow Economy: Evidence from Privately Held Firms

Author

Listed:
  • Omar Farooq

    (ADA University)

  • Khondker Aktaruzzaman

    (Xiamen University Malaysia)

  • Harit Satt

    (Al Akhawayn University in Ifrane)

  • Fatima Zahra Bendriouch

    (Université Sidi Mohamed Ben Abdellah)

Abstract

Using the data provided by the World Bank’s Enterprise Surveys, this paper shows that firms with higher exposure to informal competition are more likely to innovate than firms with lower exposure to informal competition in 121 developing countries. Our results hold in various sub-samples based on the size of firms and on the location of firms (Europe and Central Asia, Africa, Asia, Latin America, and Middle East and North Africa). We argue that formal firms use innovation as a tool to protect and sustain their competitive advantage vis-à-vis informal firms. The findings of this paper also show that the firm-level business environment and the country-level economic environment affect the sensitivity of innovation to informal competition.

Suggested Citation

  • Omar Farooq & Khondker Aktaruzzaman & Harit Satt & Fatima Zahra Bendriouch, 2022. "Innovations as a Response to Shadow Economy: Evidence from Privately Held Firms," Journal of Industry, Competition and Trade, Springer, vol. 22(3), pages 349-370, December.
    • Handle: RePEc:kap:jincot:v:22:y:2022:i:3:d:10.1007_s10842-022-00388-6
    DOI: 10.1007/s10842-022-00388-6
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10842-022-00388-6
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s10842-022-00388-6?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jorge A. Heredia Pérez & Xiaohua Yang & Ou Bai & Alejandro Flores & Walter Heredia Heredia, 2019. "How Does Competition By Informal Firms Affect The Innovation In Formal Firms?," International Studies of Management & Organization, Taylor & Francis Journals, vol. 49(2), pages 173-190, April.
    2. Era Dabla-Norris & Erasmus K. Kersting & Geneviève Verdier, 2012. "Firm Productivity, Innovation, and Financial Development," Southern Economic Journal, John Wiley & Sons, vol. 79(2), pages 422-449, October.
    3. Rita Almeida & Ana Margarida Fernandes, 2008. "Openness and Technological Innovations in Developing Countries: Evidence from Firm-Level Surveys," Journal of Development Studies, Taylor & Francis Journals, vol. 44(5), pages 701-727.
    4. Colin C. WILLIAMS & Mark A. LANSKY, 2013. "Informal employment in developed and developing economies: Perspectives and policy responses," International Labour Review, International Labour Organization, vol. 152(3-4), pages 355-380, December.
    5. Mertzanis, Charilaos, 2019. "Family ties, institutions and financing constraints in developing countries," Journal of Banking & Finance, Elsevier, vol. 108(C).
    6. repec:cup:jfinqa:v:46:y:2011:i:06:p:1545-1580_00 is not listed on IDEAS
    7. Maurizio Zollo & Sidney G. Winter, 2002. "Deliberate Learning and the Evolution of Dynamic Capabilities," Organization Science, INFORMS, vol. 13(3), pages 339-351, June.
    8. Brian T. McCann & Mona Bahl, 2017. "The influence of competition from informal firms on new product development," Strategic Management Journal, Wiley Blackwell, vol. 38(7), pages 1518-1535, July.
    9. Charilaos Mertzanis & Mona Said, 2019. "Access to skilled labor, institutions and firm performance in developing countries," International Journal of Manpower, Emerald Group Publishing Limited, vol. 40(2), pages 328-355, February.
    10. Ayyagari, Meghana & Demirgüç-Kunt, Asli & Maksimovic, Vojislav, 2011. "Firm Innovation in Emerging Markets: The Role of Finance, Governance, and Competition," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 46(6), pages 1545-1580, December.
    11. Mita Bhattacharya & Harry Bloch, 2004. "Determinants of Innovation," Small Business Economics, Springer, vol. 22(2), pages 155-162, March.
    12. Bourhaba Othmane & Hamimida Mama, 2016. "An Estimation of the Informal Economy in Morocco," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(9), pages 140-147, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mounir Amdaoud & Christian Le Bas, 2020. "Firm Patenting and Types of innovation in Least Developed Countries. An Empirical Investigation on Patenting Determinants," Working Papers hal-03059466, HAL.
    2. Kouam, Jean & Asongu, Simplice, 2022. "Effects of Taxation on Social Innovation and Implications for Achieving Sustainable Development Goals in Developing Countries: A Literature Review," MPRA Paper 114061, University Library of Munich, Germany.
    3. Sam Njinyah & Simplice A. Asongu, 2022. "The relationship between firms that start operating as unregistered and firms’ innovation: the moderating effect of access to finance," Working Papers 22/099, European Xtramile Centre of African Studies (EXCAS).
    4. Vartuhi Tonoyan & Christopher Boudreaux, 2023. "Gender Diversity in Ownership and Firm Innovativeness in Emerging Markets. The Mediating Roles of R&D Investments and External Capital," Papers 2301.01127, arXiv.org.
    5. Messaoud Zouikri & Mounir Amdaoud, 2018. "Compétences externes et innovation: le cas des firmes de l'industrie manufacturière algérienne," EconomiX Working Papers 2018-37, University of Paris Nanterre, EconomiX.
    6. Xu, Jian & Liu, Yu & Abdoh, Hussein, 2022. "Foreign ownership and productivity," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 624-642.
    7. Tran Thi Hue, 2019. "The determinants of innovation in Vietnamese manufacturing firms: an empirical analysis using a technology–organization–environment framework," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 9(3), pages 247-267, September.
    8. Jean C. Kouam & Simplice A. Asongu & Bin J. Meh & Robert Nantchouang & Fri L. Asanga & Denis Foretia, 2022. "Duration of Support and Financial Health of Business Support Structures in Burkina Faso, Cameroon, and Ghana: A Micro-Econometric Analysis," Working Papers of the African Governance and Development Institute. 22/048, African Governance and Development Institute..
    9. Antonio Alleyne & Troy Lorde & Quinn Weekes, 2017. "A Firm-Level Investigation of Innovation in the Caribbean: A Comparison of Manufacturing and Service Firms," Economies, MDPI, vol. 5(3), pages 1-18, September.
    10. Tonoyan, Vartuhi & Boudreaux, Christopher J., 2023. "Gender diversity in firm ownership: Direct and indirect effects on firm-level innovation across 29 emerging economies," Research Policy, Elsevier, vol. 52(4).
    11. Misraku Molla Ayalew & Zhang Xianzhi & Yidersal Dagnaw Dinberu & Demis Hailegebreal Hailu, 2020. "The Determinants of Firm’s Innovation in Africa," Journal of Industry, Competition and Trade, Springer, vol. 20(3), pages 527-567, September.
    12. Roberto Alvarez & Rolando Campusano, 2014. "Does Competition Spur Innovation in Developing Countries?," Working Papers wp388, University of Chile, Department of Economics.
    13. Anzhelika Viktorovna Karpushkina & Irina Valentinovna Danilova & Svetlana Vladimirovna Voronina & Irina Petrovna Savelieva, 2021. "Assessing the Impact of Employment in the Informal Sector of the Economy on Labor Market Development," Sustainability, MDPI, vol. 13(15), pages 1-15, July.
    14. Khayyat, Nabaz T. & Lee, Jeong-Dong, 2015. "A measure of technological capabilities for developing countries," Technological Forecasting and Social Change, Elsevier, vol. 92(C), pages 210-223.
    15. Trinh, Long, 2015. "Is innovation activity persistent among small firms in developing countries? Evidence from Vietnam," MPRA Paper 63767, University Library of Munich, Germany.
    16. Arshed, Noman & Hanif, Nadia & Aziz, Osama & Croteau, Martin, 2022. "Exploring the potential of institutional quality in determining technological innovation," Technology in Society, Elsevier, vol. 68(C).
    17. Muhammad Masood Azeem & Syed Fazal‐e‐Hasan & Leopoldo Gutiérrez & Derek Baker, 2022. "Does functional diversity in interfirm collaborations lead to innovation diversity? Firm‐level evidence from the Australian food industry," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 66(3), pages 612-637, July.
    18. Dorgyles C. M. Kouakou, 2023. "Competing against ‘invisibles’: the effect of competition from informal firms on formal firms’ R&D," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 13(1), pages 87-117, March.
    19. Shi, Yang & Li, Jiachen & Liu, Ruiming, 2023. "Financing constraints and share pledges: Evidence from the share pledge reform in China," Journal of Corporate Finance, Elsevier, vol. 78(C).
    20. Sam Z. Njinyah & Simplice A. Asongu, 2023. "Unregistered Firms, Financial Access and Innovation," Journal of Entrepreneurship and Innovation in Emerging Economies, Entrepreneurship Development Institute of India, vol. 32(2), pages 307-346, July.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:jincot:v:22:y:2022:i:3:d:10.1007_s10842-022-00388-6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.