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Paper short abstract

Using 2006–2010 firm data from 19 Latin American countries, I show digital servitisation exports boost incremental and market-novel innovation, especially when firms institutionalise digital knowledge routines (FDKAI) and invest in R&D and training.

Paper long abstract

Manufacturers increasingly pair products with digitally delivered services for foreign customers, yet we know little about how these Digital Servitisation Exports (DSE) reshape firm innovation in developing economies. Using firm-level data on 19 Latin American countries’ manufacturers in 2006 and 2010, I introduce a practical DSE measure and a Firm Digital Knowledge Acquisition Index (FDKAI) that captures routines and platforms for sourcing foreign knowledge through digital channels. To address selection, I combine entropy balancing, logit models with country, industry, and year fixed effects, and Oster’s coefficient-stability bounds in estimating DSE-innovation outcomes relationships. Three takeaways emerge. First, DSE is associated with more innovation of both kinds: incremental improvements that refine existing offerings (exploitative) and market-novel solutions that push the frontier (exploratory). Second, the innovation payoffs from DSE arise not from digital exposure alone but from complementarities: firms convert foreign digital knowledge into innovation outcomes when FDKAI works in bundles with conversion capabilities such as R&D and structured employee training. Third, exploratory innovation demands a richer bundle than exploitative innovation, suggesting that stronger conversion capabilities are required to turn DSE-enabled incremental gains into market-novel breakthroughs. These findings underscore that manufacturers in developing countries should treat DSE not merely as a sales route but as an engineered learning system, for which they should institutionalise platform-mediated workflows and invest in R&D and employee training.

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Paper short abstract

Scholarship often claims that countries in Africa struggle to innovate because of weak 'macro-institutions'. However, the growth of the mobile money sector in Africa reveals that innovation can occur so long as regulators and firms design effective 'meso-institutions'.

Paper long abstract

How can African countries innovate when they have weak 'macro-institutions' often emerging from colonialism - corrupt and under-resourced legislatures, courts and police? In theory, weak macro-institutions, which apply to everyone in society, discourage firms from engaging in the type of long term relationships with each other which are required to develop new technological innovations.

The growth of the mobile money sector - now numbering over 500 million active accounts in Africa - reveals that innovation can occur so long as regulators and firms design effective 'meso-institutions'. These institutions are rules for specific sectors of the economy. Meso-institutions are a combination of private ordering (rules designed and implemented by firms and customers, such as contracts and industry norms) and, to varying degrees, regulatory intervention in that private ordering (through regulation and/or monitoring contracts and norms).

Choices made by regulators shape meso-institutions which in turn determine which sectors will scale in an economy and how those sectors can operate despite weak macro-institutions. This makes regulators the 'hidden gatekeepers' of innovation in Africa. Regulatory choices supported mobile money in several African countries, creating significant growth in the sector: Kenya (30 million users), Tanzania (16 million users), and Uganda (26 million users). In contrast, decisions made by regulators generated meso-institutions in South Africa and Nigeria which supported the banking sector, resulting in very small mobile money sectors in those countries. This analysis suggests scholars and practitioners in international development should pay more attention to meso-institutions, through, for example, increased training of regulators.

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Paper short abstract

AI governance frameworks transplanted from Global North create dependencies for African financial institutions. This paper discusses that an organisation’s Institutional DNA: values, purpose, and risk governance norms, enable culturally practical and sustainable capability building over dependency.

Paper long abstract

While AI promises to democratize access to financial services and accelerate inclusive growth, it simultaneously risks rooting new forms of exclusion, opacity, and technological dependency. AI systems depend on the availability of reliable, representative data and robust governance frameworks. In many African countries, such preconditions remain uneven.

African financial institutions face a governance paradox: AI regulatory frameworks designed by the AI Core to mitigate risk in Global North markets systematically undermine local capability development in African contexts. The AI Core representing the US and China where over 80 percent of AI models are derived (Farhad, 2025). These transplanted frameworks impose compliance assumptions about data infrastructure, market structure, and organizational capacity that misalign with local contexts, constraining African national financial sectors regardless of institutional size or type. Through comparative analysis of national AI strategies and financial sector regulations across Ghana, Kenya, Nigeria, and South Africa (in the Global South), I show that AI Core governance frameworks (e.g. EU AI Act and OCED AI Principles) fail to accommodate the institutional realities of African financial systems, creating four gaps: regulatory, systematic, epistemic, and operational.

I propose contextualized governance as an alternative approach, arguing that effective AI regulation must center on locally adapted risk models rather than impose universal standards from regions with distinctively different operational norms. This reframing shifts the policy focus from transplantation to adaptation, enabling governance frameworks that build absorptive capacity while addressing legitimate risk concerns.