Source of fund, financial constraints, political instability, and firm innovation: empirical evidence from Arab Spring countries

Abstract

The purpose of this article is to examine the impact of financial constraints on innovation in countries experiencing the Arab Spring. It also looks at how the impact of financial constraints varies with the source of funding. The study uses 2013 BEEPS data. 2261 companies from 5 MENA countries were included in our sample. The recursive bivariate probit and extended probit models are used. Our findings show that financial constraints negatively affect the likelihood of enhancing a firm's innovative performance. Unlike the existing literature, the effect of financial barriers was not only directly examined, but also the region and fund structure of the company were examined together. Although bank loans directly negatively impact innovation performance, when this effect is considered together with financial barriers, it has been observed that the effects of financial barriers decrease. An even more significant decline is seen with the inclusion of the regional influence.