Does Competition Spur Innovation in North Africa? Evidence from a Panel ARDL Approach

Abstract

The launch of the African Continental Free Trade Area at the beginning of 2021 provides new opportunities for North African countries to boost their economies. To conquer this vast market, innovation has become an ineluctable need. Although competition policy may serve as a salient lever for enhancing innovation, it is still not well harnessed by North African economies, even though they have one of the oldest competition law regimes on the African continent. For this purpose, this article attempts to explore the relationship between competition and innovation in four North African countries from 1995 to 2019. The second generation of panel unit root and cointegration tests have been used in our study. Based on the estimations of the panel autoregressive distributed lag model, our findings show that competition positively impacts innovation in the long run. Furthermore, our empirical results demonstrate that innovation is positively affected by economic growth and financial development while negatively affected by human capital and trade openness in the long run. The causality analysis reveals a unidirectional causal relationship running from competition to innovation.