Financial and Non-Financial Obstacles to Innovation: Empirical Evidence at the Firm Level in the MENA Region

Abstract

Innovation, in all its forms, has become a central activity in companies. Moreover, innovation is considered as the engine of growth in several countries. The main objective of this paper is to study the determinants of innovation (product and process) in firms in the Middle East and North Africa (MENA) region via concentrating on the impact of financial and non-financial obstacles. The empirical study refers to row data collected by the World Bank’s Survey of Enterprises (WBES) between 2013 and 2020 in 10 MENA countries. The empirical results of the probit model estimation show that international quality certification, women’s participation in ownership, and investment in research and development (R&D) have a positive impact on all types of innovation. Nevertheless, small firms, sole proprietorships, and firms managed by women are found to be less innovative. The problem of endogeneity between innovation and financial obstacles is controlled thanks to the use of the instrumental regression method (IV-probit). The results confirm that the variable measuring the financial obstacles is endogenous, and it impacts all types of innovation negatively. The results of the IV-probit regression show that the non-financial obstacles related to the business environment which negatively affect innovation are: business licensing and permits, corruption, access to electricity, labor regulations, political instability, and the practices of competitors in the informal sector.

Mathematical Modeling for Financial Analysis of an Enterprise: Motivating of Not Open Innovation

“…At present, the application of innovations in all areas of enterprise activity has become a central focus of accelerating economic development. At the present stage, information technologies used in the management of small and medium-sized companies [50][51][52][53][54], banking systems [55], consulting organizations [56], etc., have become an actual innovative tool. In the evolution of computer information technologies, as a key factor in the innovative transformation of all spheres of activity of enterprises, the most important role is given to the use of mathematical modeling to solve problems of analyzing the results of their functioning.…”

Global value chains, financial constraints, and innovation

“…Moreover, they satisfy the exclusion restriction assumption since they do not directly affect innovation, but they affect it only through GVC participation. This has been proved by Oudgou (2021) who finds no significant effect when assessing the effect of these obstacles on firm's innovation level. Furthermore, these instruments are relevant and valid as presented in Table 10 in Appendix, as they are exogenous and over-identified for the four definitions of GVC participation.…”

“…It is also proved to be exogenous because it only affects innovation through financial constraints. This can be explained by the fact that since it is difficult for financial institutions to provide firms with loans to finance their innovation, so it is even more difficult to provide overdraft facilities-which are only available for a shorter period-for innovation financing (Chundakkadan & Sasidharan, 2019;Oudgou, 2021).…”

Framework for Measuring Process Innovation Performance at Indonesian State-Owned Companies

“…The elaboration of innovation indicators used an IPO model system approach (input-processoutput). Several previous researchers stated that the input for innovation success (product innovation and process innovation) was the budget issued by a company for research and development (R&D) programs [79][80][81][82][83][84][85][86][87], including the budget for ICT investment [73,86,88]. Jin and Lee [89] explained that R&D budget assistance from the government can improve management performance to generate innovation.…”