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Product innovation and informal market competition in sub-Saharan Africa

Author

Listed:
  • Elvis Korku Avenyo

    (University of Oxford
    University of Johannesburg)

  • Maty Konte

    (Columbia University, United-States and UNU-MERIT)

  • Pierre Mohnen

    (Maastricht University and UNU-MERIT)

Abstract

The interaction between formal and informal businesses continues to grow in African countries. Yet, competition from informal enterprises remains one of the top three obstacles formal businesses face in sub-Saharan Africa. This paper investigates the effect of informal competition on the performance of innovative products introduced by formal firms. We combine the World Bank’s Enterprise Survey with the Innovation Follow-up Survey for five sub-Saharan African countries, and construct two indicators of informal competition, one regional (local)-specific and the other one industry-specific. We find that local informal competition has a robust negative effect on product innovation intensity of formal firms, while within industry informal competition enhances innovative sales. However, larger firms are less affected by local informal competition and actually get a boost in innovative sales from informal competition. We argue that local informal competition harms the performance of product innovation, but only for formal firms that lack strategic collaborative ‘footholds’ in the informal economy.

Suggested Citation

  • Elvis Korku Avenyo & Maty Konte & Pierre Mohnen, 2021. "Product innovation and informal market competition in sub-Saharan Africa," Journal of Evolutionary Economics, Springer, vol. 31(2), pages 605-637, April.
    • Handle: RePEc:spr:joevec:v:31:y:2021:i:2:d:10.1007_s00191-020-00688-2
    DOI: 10.1007/s00191-020-00688-2
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    Cited by:

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    2. Qing Li & Long Hai Vo, 2024. "Determinants of intangible capital investment in Vietnam: A firm‐level analysis," The World Economy, Wiley Blackwell, vol. 47(3), pages 1055-1088, March.
    3. Brancati, Emanuele & Di Maio, Michele & Rahman, Aminur, 2024. "Finance, informal competition, and expectations: A firm-level analysis," World Development, Elsevier, vol. 173(C).
    4. Otrachshenko, Vladimir & Hartwell, Christopher A. & Popova, Olga, 2023. "Energy efficiency, market competition, and quality certification: Lessons from Central Asia," Energy Policy, Elsevier, vol. 177(C).
    5. Zhao, Nan & Liu, Xiaojie & Zhang, Zizhe, 2022. "Does competition from the informal sector affect firms’ energy intensity? Evidence from China," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 130-142.
    6. Godsway Korku Tetteh, 2023. "Local digital lending development and the incidence of deprivation in Kenya," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 9(1), pages 1-26, December.
    7. Zhang, Jianhong & Jiang, Jiangang, 2024. "Investment deregulation and innovation performance of Chinese private firms," Journal of Financial Stability, Elsevier, vol. 70(C).
    8. 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.
    9. Avenyo, Elvis Korku, 2021. "Learning and Product Innovation Performance in Informal Enterprises: Evidence from Urban Ghana," MPRA Paper 108839, University Library of Munich, Germany, revised 05 May 2021.
    10. Kefyalew Endale, 2024. "The Effects of Informal Competition on Manufacturing Firm Productivity in Ethiopia," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(3), pages 15129-15160, September.

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    More about this item

    Keywords

    Informality; Market Competition; Product innovation; sub-Saharan Africa;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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