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The main aim of this paper is to examine empirically the extent to which firm-specific action, innovation, and an external factor, the quality of regional institution, affect firms’ productivity. To this end, a firm-level dataset from 15 African countries was used and the three-step CDM approach was employed to estimate the relationship. The empirical results of the study highlight that firms that invest in R&D are more innovative and innovative firms are more productive, indicating the importance of innovation for firms’ productivity. In addition, regional institutional quality has a significant positive effect on productivity, particularly for firms at low productivity distribution. Therefore, improving the quality of regional institutions, in addition to promoting R&D and innovation, is essential to enhance the productive capacity of firms in Africa. The present study contributes to the existing literature by providing new empirical evidence on the role of regional/local institutions on firm productivity for a region, Africa, which needs productivity enhancement the most. It is also recommended that further studies, similar to this one, should be carried out in order to better understand the topic in the context of African firms.

Whether economic growth is the cause or the consequence of improved institutional quality has been a controversial issue. To throw light on this debate, the present study aims to investigate the nature and direction of causality between institutional quality and economic growth. To this end, a panel data of 30 SSA countries for the 1990–2015 period is used and analyzed using a heterogeneous panel non-causality approach developed by Dumitrescu and Hurlin (Econ Model 29(4):1450–1460, 2012). Our empirical findings indicate a significant heterogeneity across the countries with regard to the relationship between growth and institutional quality, based on the income level. In low-income countries, we found a unidirectional causality that runs from institutional quality to growth. For lower-middle-income countries, however, the direction of causality is reversed. The evidence from this study also suggests a bidirectional causality in upper-middle-income countries. The policy implication of these findings is that policymakers in low-income countries should focus on institutional reform. Good quality institutions will promote economic growth that will ultimately turn into a cyclical process between economic growth and institutional development in later stages.

ABSTRACTThe main aim of this study is to empirically examine the role of regional institutional quality, and compare the relative importance of three different institutional arrangements, namely regulatory quality, rule of law, and corruption, on propensity of firm innovation in African countries. To this end, we used the most recent World Bank Enterprise Survey (WBES) of firms from 19 African countries. Our empirical investigation using multilevel logistic regression has drawn three important conclusions. First, there is no significant relationship between firm-specific factors, such as age, ownership, and exporting, and firm innovation. Nonetheless, firms’ propensity to innovate is significantly determined by the size of the firm, R&D expenditures, on-the-job training (OJT), and capability of managers/owners to adopt new technologies. Second, the innovation performance of firms is significantly affected by regional institutional quality. Third, among different regional institutional arrangements, reducing corruption and maintaining rule of law appeared to matter the most for firm innovation.

In recent years, Turkey has witnessed a new form of corporate finance in which companies, commonly called ‘Islamic’, borrow directly from lenders without using any financial intermediaries. Trust among lenders and borrowers has initiated market exchange, secured deals and lowered transaction costs. This paper claims that the base of trust in direct financing for Islamic companies should be largely attributed to the self-interest of the parties rather than just to Islam or ‘shared values’. Here we do not see an individual calculation of ‘economic man’, as argued by neo-classical economists, but individuals embedded in relations within social groups and sharing ethics of money-based relations. Second, we illustrate that self-interest based trust stems from the calculations of trusters using available information in the market about trustees. However, information asymmetry between borrowers and lenders in favour of borrowers has been a source of deep instability and abuse. Finally, the paper shows how groups have used the rhetoric of Islamic economic revival to expand the scope of transactions while trust eroded in favour of abusers. The anonymity came with thousands of investors who eroded the strength of reciprocity, surveillance and retribution in trust-based relations. This case study also illustrates that Islamic societies seek new solutions within capitalist economic systems to maximise their gains and they do not wish to be destined to live in poverty.

In recent years, Turkey has witnessed a new form of corporate finance in which companies, commonly called ‘Islamic’, borrow directly from lenders without using any financial intermediaries. Trust among lenders and borrowers has initiated market exchange, secured deals and lowered transaction costs. This paper claims that the base of trust in direct financing for Islamic companies should be largely attributed to the self-interest of the parties rather than just to Islam or ‘shared values’. Here we do not see an individual calculation of ‘economic man’, as argued by neo-classical economists, but individuals embedded in relations within social groups and sharing ethics of money-based relations. Second, we illustrate that self-interest based trust stems from the calculations of trusters using available information in the market about trustees. However, information asymmetry between borrowers and lenders in favour of borrowers has been a source of deep instability and abuse. Finally, the paper shows how groups have used the rhetoric of Islamic economic revival to expand the scope of transactions while trust eroded in favour of abusers. The anonymity came with thousands of investors who eroded the strength of reciprocity, surveillance and retribution in trust-based relations. This case study also illustrates that Islamic societies seek new solutions within capitalist economic systems to maximise their gains and they do not wish to be destined to live in poverty.Comparative Economic Studies (2006) 48, 132–155. doi:10.1057/palgrave.ces.8100073