Gasmi, Farid, Kouakou, Dorgyles and Sanni, Maruf (2022) The effect of firm informality on sustainable and responsible innovation in developing countries: Evidence from Nigeria. TSE Working Paper, n. 22-1368, Toulouse

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Abstract

At the turn of the millennium, developing countries face a twofold societal challenge. First,
these countries need to understand the deep principles underpinning informality, which is by
now recognized as a structuring phenomenon of their economies. Second, for reasons related
to both intra- and inter-generational justice, these countries need to follow the sustainable
development pathway. This paper highlights a micro-economic aspect of the relationship
between these two goals by investigating how a firm being formal versus informal affects its
sustainable and responsible innovation (S&RI) activity, a milestone for sustainable
development. Using a propensity score matching methodological approach to analyze an
original database extracted from the Nigerian Business Innovation Surveys for 2005-2007, we
find that registered Nigerian firms have a higher propensity to introduce S&RIs than
unregistered firms. This result is robust to alternative and widely used matching methods.
Hence, in the prospect of sustainable development of Nigeria and developing countries in
general, there should not be a hiatus between acknowledging and further understanding the
importance of informality in the economy and promoting policies that give firms incentives to
formalize.