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Managing Innovation under Competitive Pressure from Informal Producers

This paper studies the impact on innovation of competition against firms in the informal sector. Using the World Bank's Enterprise Survey data from a sample of African and Latin American countries, we find that the marginal impact of informality on innovation by formal firms decreases with the intensity of competitive pressure from informal firms, consistent with an inverted-U relationship between propensity to innovate and competitive pressure from rms in the informal sector.