Institutions, State-Business Relations and Innovation in Developing Countries: The Case of Tunisia and Morocco

Abstract

This paper is trying to investigate the effect of State Business Relations (SBR) and institutional settings on the development of innovational capacities in developing countries. It differentiates between informal SBR-based cronyism and formal SBR-based lobbying and how they could influence innovation. The paper starts with a theoretical discussion on the available literature including a theoretical model introduced in Sabry (2019a) which is building on and complementing the Aghion and Howitt (2009) growth model with institutions. The theoretical discussion focused on how different forms of SBR affect government decision to adopt either a strategy fostering technology imitation/transfer or one fostering innovation.

The suggestions of the theoretical discussion are then applied on Morocco and Tunisia, two countries with regional leading performance in technological capabilities and innovation, yet still lagging behind internationally, with much room for improvement. Using these suggestions, the paper tries to explain the factors affecting their current performance in innovation and prospects for convergence with or diverging from the international technological frontier. This is done using statistical data obtained from various international reports and datasets, including the Global Competitiveness Indicators (GCI) and the World Bank Worldwide Governance Indicators (WGI) and World Development Indicators (WDI), as well as the literature on the subject. This analysis suggests that both countries pursue more of technology imitation/transfer rather than innovation strategy. High levels of cronyism suggest that it is likely behind the persistence of imitation strategy even when productivity gains are not high or even deteriorating, as in the case of Tunisia. Economic growth in both countries is more likely to have been caused by natural resources at a time when institutional reform didn’t sufficiently curb cronyism. This opens prospects for the flow of more crony privileges, making it possibly a further factor reducing the possibility of adopting an innovation strategy.

Keywords: Innovation, technology imitation, state-business relations, cronyism, lobbying, institutions, governance, Tunisia, Morocco, MENA

JEL Classification: O30, O38, O43, O53