Insider-Outsider Hypothesis Revisited: Why Informal Institutions can be Tricky - The Context of Tunisian Business Environment

Abstract

The paper endeavours to discuss insider-outsider hypothesis in the context of the Tunisian business environment. By doing so, the paper expands our understanding about the underperformance of Tunisia in attracting fair level of foreign direct investment. The paper argues that privatised firms with domestic owners perceive the constraints imposed by the institutional framework differently than the privatised firms with foreign owners. Institutional constraints are less important to privatised firms with domestic owners than to privatised firms with foreign owners. Domestic owners have a better endowment with information that allows them to cope with institutional constraints, hence, can minimise the associated transaction costs. Moreover, the paper shows that the difference in the perception appear to be more pronounced with regards to informal institutional constraints than with regards to formal institutional constraints. This underlines the importance of tackling informal institutions if reforms of formal rules are to achieve their expected outcome in the business environment.