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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
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    References listed on IDEAS

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