Managing Credit Constraints Under Competitive Pressure From the Informal Sector

Although informal firms are rare in developed economies, they are prevalent in emerging economies and create significant competitive pressure for formal firms. Recent literature has focused on the effects of informal competition on product innovation, but the results have been inconsistent. This discordance motivated this study. Drawing on insights from competitive rivalry, this study investigates how informal competition affects formal firms’ product innovativeness (i.e., whether to develop new‐to‐market products or not). Using a sample of firms operating in Eastern Europe and Central Asia from the World Bank Enterprise Survey, we find that if formal firms encounter intense competitive pressure from informal firms, they are less inclined to develop new‐to‐market products. Furthermore, credit constraints strengthen the adverse effect of competitive pressure from informal firms on the development of new‐to‐market product innovation, but state legitimacy weakens this effect. This investigation provides insight into the barriers to innovation in emerging economies and adds to the existing literature by highlighting the need to consider the varied effects of informal competition on different types of product innovation.

PurposeCompetitive pressure from informal firms has always been a threat to the formal enterprises. However, the strategic choices a firm makes to deal with such competitive pressures still remain under-explored. The purpose of this paper is to examine the influence of informal competitive pressures in driving export propensity of formal firms.Design/methodology/approachThe paper is based on a standard error logistic model, and the model takes into account the contingent relationships along with the primary relationship. The authors draw the sample of 9,812 manufacturing firms spanning across the Indian sub-continent from the World Bank enterprise survey conducted in the year 2014.FindingsThe empirical results indicated that the level of competition from informal firms is positively associated with the propensity to export. The primary relationship is also affected by various contingent factors such as regulatory obstacles, bribery and new product development.Research limitations/implicationsAlthough the World Bank enterprise survey data provide a broad coverage, the study warranted few proxy measures in order to operationalize formal competition as it was not captured directly in the concerned data set.Practical implicationsThe analysis demonstrates that informal competition has direct effect on the firm’s propensity to export. The findings indicate that export is an attractive action alternative for firms facing informal completion in an emerging economy. The results further indicate that this effect strengthens as institutional factors such as regulatory obstacles and bribery increase.Social implicationsThe paper is an attempt to alter the prevailing negative view on informality. The findings indicate that informal competition spurs competitiveness in the formal sector indicating its positive role in the economic growth of the nation.Originality/valueThe paper takes cue from attention-based view of the firm and the institutional escapism logic to affirm the role of informal competition and various contingent institutional and strategic factors in driving export propensity.

Competition from informal firms and product innovation in EU candidate countries: A bounded rationality approach

There is no denying in the fact that informal sector of any economy offersemployment flexibility by absorbing a pool of labor force. However, the rapid progression of the informal sector in Pakistan andthe consequent increase in competition faced by the formal firms urge a need to understand the dynamics of informal competition.The current study is an attempt toidentifythecorefactors responsible for the incidence of informal competition faced by formal firms in Pakistan,along with an investigation of the determinantsof the severity of thiscompetition.The study investigates the variables of firm’s characteristics and regulatory measures in order to examine the incidence and severity of informal competition faced by formal firms employing World Bank Enterprise Survey 2013 (WBES).The study not only conducts frequency analysis of the variables but based on the nature of data;it uses thelogit and ordered logit techniques todetermine the significant variables.The results of the study show that out of totalof 1125 formal firms used inthe analysis, 583 firms (46.75%) reported facing informal competition. Among these firms facing informal competition, only 16.98% reported informal competition as no obstacle in terms of its severity, however, rests of the firms (almost 83 %) consider the severity of informal competition as an obstacle in one or the other form and consider informal competition as a threat to their businesses.The result of logit model shows thatcharacteristics of formal firms resembling more to the informal firms in terms of size and locality have more likelihood of facing the informal competition. However, indetermining the severityof informal competition through the ordered logit model, theregulatory variables such as taxation, licensing & permits and corruption are found to be more significant and relevant.These results call on to introduce regulatory reforms making the regulatory system less burdensome and better enforcement mechanism of those reforms. There’s a need to create ease for the existing formal firms to fulfill the regulatory requirements as well as encourage the informal firms to join the mainstream formal setup of economy. Furthermore, the current research can be extended by availing the latest datasettoexplore the dynamics of informal sector andthe resultant competitionfor the formal firms in an ever-changingbusiness environment.

Converting a resource curse into a resource blessing: The function of institutional quality with different dimensions

Research summary : Existing research describes a broad range of determinants of new product development ( NPD ), a fundamental competitive activity of firms. A considerable share of this work has occurred in the context of developed economies, raising a concern that some important determinants may remain unexamined. We suggest that one such determinant is competition from informal (unregistered) firms. Drawing from the attention‐based view, we investigate the effects of informal competition on NPD in a large sample of firms located across Eastern Europe and Central Asia. We examine not only the direct effect but also how this effect is moderated by characteristics of the competitive and institutional context . Managerial summary : The purpose of this research is to examine the relationship between competition from informal (unregistered) firms and new product development ( NPD ) by formal firms. We argue that NPD is an effective response to differentiate from informal firms, and our analyses of over 9,000 firms located in emerging economies across Eastern Europe and Central Asia indicate that NPD activities are more likely in formal firms who rate informal competition as a greater obstacle. The strength of this direct relationship depends on aspects of the competitive and institutional environment: it is weakened when levels of competition from other formal firms are higher, when alternative responses such as corruption are more available, and when managers are more optimistic about the regulatory environment . Copyright © 2016 John Wiley & Sons, Ltd.

PurposeThreats from the informal sector have become an important concern among formal firms. As a response to these threats, formal firms can adopt product innovation (PI) and marketing innovation (MI) strategies to differentiate themselves. The purpose of this paper is to examine how firm-level technical capability and external institutional quality affect firms’ reactions to the threats from informal firms by adopting innovative activities.Design/methodology/approachBased on attention-based view (ABV), an empirical study is conducted by using firm-level data from the World Bank Enterprise Survey in 2013.FindingsThe findings indicate that when faced with competition from informal firms, formal firms will intensify their innovation activities in both MI and PI, and their technical capability mitigates the competitive threats from informal sectors and thus weakens the impact of informal competitors on the level of product and marketing innovations. Moreover, it is found that the improvement of institutional quality reduces formal firms’ urgency to introduce new products when facing informal competitors. However, this improvement strengthens the impact of informal rivalry on formal firms’ innovation in marketing methods.Originality/valuePrevious studies that investigate the influence of informal threats are focused on technological innovation (e.g., PI and process innovation) strategies, but little knowledge is provided on non-technological innovative strategies, such as marketing strategies (e.g., MI and organizational innovation). This study contributes to the innovation literature by delving into the circumstances under which PI and/or MI is adopted to counter informal rivals. The findings enrich ABV by investigating how inter-firm resource similarity and marketing commonality strengthen top managers' attention to competition from informal firms.

This study investigates the impact of governance quality on Malaysia’s economic growth from 2000 to 2021, focusing on six World Governance Indicators (WGI): voice and accountability, political stability, government effectiveness, regulatory quality, rule of law, and control of corruption. Despite Malaysia’s significant economic progress, the relationship between governance quality and growth remains underexplored, particularly in terms of long-run and short-run dynamics. Using the cointegration and error correction models, the study examines the short-run and long-run relationships between governance indicators and real GDP. The findings reveal that political stability and government effectiveness have significant positive long-run impacts on real GDP, emphasizing their critical role in fostering economic growth. However, regulatory quality and rule of law, while positively correlated, are statistically insignificant in the long run, suggesting that their benefits may take longer to materialize. Control of corruption shows a counterintuitive negative long-run relationship, likely due to transitional costs of anti-corruption measures. In the short run, most governance indicators significantly influence real GDP, with the error correction term confirming a robust adjustment toward long-run equilibrium. The study recommends prioritizing political stability and government effectiveness while implementing sustained reforms to enhance regulatory quality, rule of law, and anti-corruption measures. Policymakers should adopt a holistic approach to governance reforms, ensuring transparency, accountability, and institutional efficiency to support Malaysia’s long-term economic growth and resilience. These insights are crucial for aligning governance strategies with Malaysia’s development goals under initiatives like the Shared Prosperity Vision 2030.

Employing Toda-Yamamoto Granger causality technique, this study examined the relationship between public governance and corruption in Nigeria during the period, 1996-2022. In line with ex-post facto research design, secondary data (on yearly basis) on governance and corruption were obtained from Worldwide Governance Indicators and Transparency International respectively. The six governance indicators examined are control of corruption, government effectiveness, political stability/absence of violence, voice and accountability, rule of law, and regulatory quality, while corruption was measured using corruption perception index. Empirically, this study found that the existence of a unidirectional causality running from control of corruption-to-corruption perception index in Nigeria. This implies that good governance through the instrumentality of control of corruption is germane to stemming the tide of corruption. Likewise, there is a unidirectional causality flow from political stability to corruption perception index in Nigeria which suggests that political stability/absence of violence is instrumental to stemming the tide of corruption. Further evidence from causality test reveals that political stability had a one-way causality to control of corruption in Nigeria, which implies that to reinforce control of corruption as a governance instrument for stemming the tide of corruption; political stability is key. Moreover, voice and accountability, regulatory quality, and rule of law had a unidirectional causality with corruption perception index in Nigeria, thus suggesting the reinforcing role of regulatory quality, rule of law; and voice and accountability in promoting political stability. The study concludes that political stability/absence violence, and control of corruption are vital public governance measures for stemming the tide of corruption in Nigeria, thus indicating the ‘calm-down’ effect of good governance on corruption. It is therefore recommended that Nigerian government should intensify the tools of public governance in terms of control of corruption, and political stability, as well as voice and accountability, regulatory quality, and rule of law, in stemming the tide of corruption in Nigeria.

The study explores factors influencing research and development (R&D) costs in developing economies. The findings may inform the decision-making process for firms keen on innovation-related expenditures. The paper examines 164 Kenyan firms using the World Bank Enterprise Survey (WBES) data for 2018. These factors are classified into three broad categories. These are firm characteristics (age, size, and ownership), business competitiveness (export orientation, innovation strategies, and informal competition), and technology upgrade challenges (skills availability, financial constraint, and technology incompatibility). The findings reveal that approximately 11% of firms incurring R&D costs export their products (services). Exportation, skilled labor availability, and degree of informal competition correlate positively and significantly to R&D expenditure. The largest ownership (%) has a marginal effect on the outcome variable. Moreover, firm size substantially influences R&D costs, with small to medium firms incurring lower costs than their larger counterparts. However, firm age, innovation strategy, financial constraint, and technology incompatibility weakly influence the outcome variable. The product innovation strategy’s interaction effect with skills, firm age and informal competition substantially impacts R&D costs. Notably, firms’ R&D spending must be in tandem with the domestic informal competition intensity, skills availability, and foreign market targeted. The study employs the Ordinary Least Squares (OLS) regression in examining the relationship between the predictors and the dependent variable.

The author investigated the nature of institutional quality in the Common Market for Eastern and Southern Africa (COMESA) on the basis of voice and accountability political stability, government effectiveness, regulatory quality, rule of law and control of corruption. The author further investigated the existence of a link between institutional quality and factors of production. The results show that capital, entrepreneurship and foreign direct investment are the major determinants of production of tradable goods in COMESA. In exception of Mauritius and Namibia (currently no longer a member) the rest of COMESA member states have very poor institutional quality. This affects their ability to attract foreign direct investment hence production of tradable goods. Voice and accountability, government effectiveness, rule of law and political stability play a major role in increasing production of tradable goods in COMESA. Foreign direct investment is affected by voice and accountability, rule of law and political stability than any other factors. Availability of raw material is affected by government effectiveness, regulatory quality, political stability, voice and accountability and control of corruption. Capital is very sensitive to issues of voice and accountability and control of corruption and regulatory quality.

This paper examined the mediating role of trust in government on the influence of public governance quality indicators (accountability, political stability, government effectiveness, regulatory quality, rule of law, and control of corruption) on tax compliance in Africa. Cross-country data obtained from 38 African countries for 2015 was used and analyzed using Ordinary Least Squares (OLS) regression analysis. The study found that accountability, political stability, control of corruption, and trust have a significant influence on tax compliance among the sampled African countries, but government effectiveness, regulatory quality, and the rule of law and have insignificant influence on tax compliance. The result of the mediating effects revealed that trust mediates the influence of accountability and political stability on tax compliance in Africa. However, it failed to mediate the influence of government effectiveness, regulatory quality, rule of law, and control of corruption on tax compliance among sample African countries. The study offers theoretical insights on the role of trust as a mediator on social exchange relationships from the context of public governance quality on tax compliance. It also implies to the policymakers that building trust is an important mechanism through which the impact of public governance on tax compliance would be more pronounced. The study further calls for replication of its findings in other continents such as the Americas, Asia, and Europe.

Impact of Crude Oil Price on the Political Environment of Crude Oil Consuming Countries

Energy intensity of manufacturing enterprises under competitive pressure from the informal sector: Evidence from developing and emerging countries

Good governance is essential for both economic development and food security, which hinges on the availability, affordability, and safety of food which are vital for people’s livelihoods. When governance falters, food systems ranging from production to storage, processing, distribution and even consumption tend to be disrupted. This study analysed how various governance factors, assessed through indicators like voice and accountability, political stability, absence of violence and terrorism, control of corruption, government effectiveness, regulatory quality, and rule of law, affect food security in sub-Saharan Africa. Cross-country panel data sourced secondarily from 28 countries and a System Dynamic Panel Data Estimation Technique were used for the study. The result of the descriptive statistics revealed that food security achieved the highest mean value among the analysed variables. Additionally, a pairwise correlation matrix indicated significant positive relationships between food security and factors such as voice and accountability, political stability, control of corruption, government effectiveness, regulatory quality, and rule of law in sub-Saharan Africa. Results of the regression analysis indicated that government effectiveness, political stability, absence of violence and terrorism, regulatory quality, and adherence to the rule of law positively correlated with food security, aligning with anticipated hypotheses. However, indicators like voice, accountability, and control of corruption had negative impacts. The significant link between government effectiveness and past levels of food security highlights the importance of robust governance systems, particularly within institutions responsible for food supply. Enhancing governance frameworks, especially those involving agencies tasked with making food available and affordable, is essential. Addressing the impacts of climate change on these systems is also crucial. Empowering citizens and involving them in the design and implementation of food production initiatives is key. Ensuring transparency, accountability, and openness across all institutions involved in food security, while tackling corruption in the food supply chain, must be prioritised. Sustained peace-building efforts and support for conflict-affected nations are vital for regional stability and improved food security. Key words: food, food security, governance, panel data, system dynamic analysis, sub-Saharan Africa