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Accepted Paper:
Product innovations and informal market competition in sub-Saharan Africa: Firm-level evidence
Elvis Avenyo
(University of Johannesburg)
Paper short abstract:
In SSA, firm-level evidence reveal the competitive behaviour of informal enterprises as 'unhealthy' and a top three obstacle formal businesses face. This paper fills the gap by investigating the relationship between informal competition and innovativeness of formal firms in 5 SSA countries.
Paper long abstract:
Product market competition is argued to enhance the innovation activities of firms (Blundell et al., 1999). In SSA, interactions between formal and informal businesses in product markets continue to grow in the face of increasing informality. Firm-level evidence however reveal the product market competitive behaviour of informal enterprises
as 'unhealthy' and one of the top three obstacles formal businesses face in SSA. With scant empirical evidence available, this paper fills the gap in the literature by investigating the relationship between informal product market competition and sales from innovative products introduced by formal firms. Using data for 5 SSA countries namely: Democratic Republic of Congo (DRC), Ghana, Tanzania, Uganda, Zambia and employing two econometric approaches that
localise informal competition in the product market at the first-level of estimation
and controls for self-selection and sample selection biases at the second level of estimation,
we have shown that 'local' informal competition matters for the performance
of product innovations. The main results show that local informal competition has a negative effect on the performance of product innovations while industry informal competition has a positive effect on product innovation. Both local and industry levels of informal competition were however found to have no effect on the probability of introducing product innovations. We also found through indirect mechanisms that firms with larger market share tend to have 'escape-competition effects'. We argue that informal competition matters for the performance of product innovations but only for formal firms that lack strategic collaborative 'footholds' in the informal economy.
Entrepreneurial resilience and innovation in turbulent environments (Paper)
Session 1