State business relations and innovation in the MENA region

ABSTRACT

Understanding that Innovation is a major determinant of economic growth, this paper is investigating how to foster Innovation in the Middle East and North Africa (MENA) region given the institutional deficiencies suffered in many of its countries. More specifically, this paper is trying to find out how State-Business Relations (SBR) have contributed to Innovation capacities of the MENA. It also investigates whether SBR have counteracted some of the region's institutional deficiencies which hinder Innovation. While doing this, this paper differentiates between formal SBR (e.g. public private dialogues) and informal SBR (relations based on family, ethnic or political connections), and puts more theoretical emphasis on the National Innovation System (NIS) approach for fostering innovation. It uses regression analysis and provides three relatively (Innovation-wise) advanced non-Gulf MENA countries as examples for the sake of enriching the discussion through a comparative analysis; these are: Egypt, Tunisia and Morocco. Using various multivariate panel OLS regressions, various important findings are obtained. The results suggest that stronger Business Associations, formal SBR and comprehensive institutional reform are needed for fostering Innovation in the MENA region. Even if Cronyism and crony-based informal SBR seem to provide a functional allocative mechanism counteracting some institutional deficiencies, yet, Cronyism do more harm than good to Innovation. Hence, institutional reform in the MENA region should also place more emphasis on eradicating Cronyism.

KEYWORDS:

• State business relations (SBR)
• innovation
• formal SBR
• informal SBR
• cronyism
• institutions
• MENA

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1 The index accounts for seven criteria: R&D intensity, Manufacturing value added, productivity; High-tech density; Tertiary efficiency (enrollment in tertiary education); Research concentration; and patent activity.

2 See Beck and Demirguc-Kunt (2005).

3 According to Transparency International official (chief of the organization’s French branch), both families controlled ‘between 30% to 40% of the Tunisian economy’. See: Lewis (2011).