Institutional Voids or Entry Barriers? Business Groups, Innovation and Market Development in Emerging Economies.
38 Pages Posted: 24 Feb 2016
Date Written: September 01, 2013
The paper presents an empirical analysis of the innovative activities of business groups. It compares the innovativeness of group-affiliated firms (GAFs) and standalone firms (SAFs), and it investigates how country-specific institutional factors – financial, legal, and labor market institutions – affect the group-innovation relationship. The paper outlines two competing views, the institutional voids and the entry barriers theses, and analyses their contrasting predictions on the role of institutional and market development. The empirical analysis is based on the most recent wave of the World Bank Enterprise Survey (period 2010-2011), and it focuses on a sample of 6500 manufacturing firms across 20 Latin American countries. The econometric results point out that GAFs are on average more innovative than SAFs. Across countries, the superior innovation performance of GAFs is stronger for national economies with weaker legal institutions (as predicted by the institutional voids thesis), and for countries with more efficient labor market regulations (as postulated by the entry barriers thesis).
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