Is corruption "Greasing" or "sanding" the wheels of innovation of firms in Mena ?

Abstract EN

In a region with a tradition and abundance of rent-seeking behavior, innovation in MENA countries is key for growth and development.

However many inherited institutional barriers are still locking the potentials for a transition towards a knowledge and innovation-based economy.

Using recently collected firm-level data from MENA countries, this article explores the effect of institutional obstacles in Egypt and Tunisia on the innovative behavior of firms.

Recognizing the potential risk of endogeneity and simultaneity, the paper uses a conditional recursive mixedprocess model (CMP) to estimate the micro level interactions that occur between corruption and business permits.

The results show a positive effect of corruption on innovation only as a “greasing” mechanism to bypass the bureaucratic obstacles of business permits.

Such an effect is even more pronounced if the firm is surrounded by other firms with corrupt practices.