Impact of Formal and Informal Institutional Constraints on Innovation: Firm-Level Evidence from Tunisia

This study investigates the interplay of formal and informal institutional constraints on firm innovation, using data from the World Bank Enterprise Survey in Tunisia. We examine how these factors shape the innovation landscape using a probit specification. We show that government system constraints amplify imitative behavior, categorizing firms into imitators, innovators, and innovation pretenders. Conversely, legal system constraints act as a deterrent to innovation, increasing the likelihood of firms assuming the role of innovation pretenders while diminishing the probability of true innovation. The study also highlights the adverse impact of commercial bribery on a firm's innovation, both independently and by influencing the effects of government and legal system constraints. Emphasizing the need for a dynamic legislative framework that actively supports innovation evolution, the study advocates for an environment conducive to sustained technological progress and societal well-being. Incorporating these insights into policymaking is deemed essential for cultivating a socially responsible, global innovation ecosystem.