Political stability and innovation in Africa

This paper examines the role of institutional factors, primarily, political stability, in shaping the dynamics of innovation activity in today’s modern society. Using panel data consisting of 26 African countries from the period between 1996 and 2016 as well as employing the negative binomial estimate, we model the impact of those factors on the number of applications for patents per resident. GDP per capita, education and also other institutional factors including the rule of law and financial freedom. The results reveal a strong positive effect of the rule of law on patenting activity.


INTRODUCTION
The business ecosystem has experienced a swift evolution within the past two decades. The process of doing business has been exposed to new technological and structural changes in the business world, which has resulted in the failure of a number of businesses to maintain their position on the market. A hundred years ago one (1) in three (3) American workers were employed on a farm. Today, less than 2% of them are able to produce much more food (The Economist, 2018). During the industrial revolution, factories and machines replaced many jobs and increased productivity.
Many factors (especially innovation) are crucial for economic growth competitiveness in the current era. Innovation is the pivot of every successful corporation. Customer options are wider than before and 1995). Institutions play a significant role in the process of decision-making, by increasing the predictability of the decision-making situations and by setting rules that govern the players, allowable actions and strategies, authorized results and links between decisions (Heywood, 2000, Hajduk-Stelmachowicz, 2018, Witkowska et al., 2019. Good institutions foster growth and give investors incentives to invest in an economy. There are two types of institutions, i.e. formal ones and informal ones, and both of them are relevant to this research. Formal institutions include the written constitution, laws, policies, rights and regulations enforced by official authorities (Leftwich& Sen, 2010;Berman, 2013). Helmke and Levitsky (2004) define formal institutions as openly codified, in the sense that they are established and communicated through channels that are widely accepted as official. These macroeconomic institutions influence the decisions of investors and managers on their approach to business and innovation. Informal institutions are (the usually unwritten) social norms, customs or traditions that shape the way of thinking and behavior (Leftwich & Sen, 2010;Berman, 2013). Helmke & Levitsky (2004) define informal institutions as socially shared rules, usually unwritten, that are created, communicated and enforced outside of official channels. Informal institutions change very slowly compared with formal institutions. In practice, formal and informal rules and norms can be complementary, competing or overlapping (Jütting et al., 2007: 36;Leftwich & Sen, 2010: 17). Whether they are relatively stronger/weaker or inclusive/discriminatory is likely to depend on the context (Unsworth, 2010). In some cases, informal institutions undermine the formal ones; in others they substitute for them (Leftwich & Sen, 2010;Jütting et al., 2007). Informal social norms often shape the design and implementation of formal state institutions (Migdal, 2001;Jütting et al., 2007).
Alesina, Ozler, Roubini and Swagel discovered that countries with a high incidence of government collapse are characterised by low economic growth, though they also revealed that low economic growth does not affect political instability (Alesina, et al., 1996). Japan, after the second world war, practiced import substitutionto build its economy and when things became better it started to promote export and import with no tariff barriers. Instead non-tariff barriers were used. China and India followed in their footsteps and the result is quite evident, as China is now the second strongest economy in the world after the USA. However, when this same system was adopted by Ivory Coast, Costa Rica, Honduras and Togo, it did not contribute to a significant improvement in the economic situations of these countries in any way. The adoption of a good policy does not work for every country due to: (a) the political climate and (b) the lack of good institutions. The cases of Ivory Coast and Togo clearly bring this to light. Political instability affects growth because it increases political uncertainty, which has negative effects on productive economic decisions related to investments and savings. A high probability of a change in government implies uncertain future policies, and risk-averse economic agents may wait to take productive economic initiatives or might even "exit" the economy by investing abroad. Similarly, foreign investors are likely to prefer a stable political environment (Alesina et al., 1996). Waguespack et al. (2005) states that political stability is an indicator of economic prospects; hence if this factor is absent, investors find it extremely unlikely to venture into such economies. The non-performance of developed countries when they adopt a working policy is a problem that should be addressed.
The insufficient protection of property rights is one of the reasons that prevent a lot of people from registering their patent in their own countries. Property rights literature is primarily concerned with two principal issues: (a) the reduction in investors' risk and an increase in incentives to invest, and (b) improvements in household welfare; the researchers explored the channels through which property rights affect growth and household welfare in developing countries (Denison & Klingler-Vidra, 2012). Alchian & Armen, (2008) state that property rights can be viewed as an attribute of economic well-being. When there is a good property rights policy that ensures the safety of the intellectual properties of its people, it encourages people to contribute to their own economies. But do property rights have any effect on a corporation's willingness to innovate?
Corruption has hindered the progress of a lot of developing countries (Navickas et al., 2016;Draskovic et al., 2019). When these institutional factors are not considered, the process of the innovation system becomes stagnant, and people, investors and industries lose confidence in their societies (Szalacha-Jarmużek & Pietrowicz, 2018;Jovovic et al., 2017). When this happens the people prefer to invest their capital in corruption-free and stable countries with good institutions (Chudy-Laskowska et al., 2017).
There are many talented scientists who have migrated to others countries because of the institutional conditions in their countries. The issue of corruption has not been addressed so far with regards to its effects on innovation.
Institutions and Innovation Activity institutions respectively, in the bottom 20 institutionally weak states, there are as many as 13 African countries. The institution variable in the world competitive report takes into account, security, social capital, checks and balances, public sector performance, transparency, property rights and corporate governance. In the ranking of institutions, there are only 2 African countries in the top 50 countries. These are Rwanda (29 th ) and Mauritius (38 th ). This demonstrates why the GEM report shows that the perception of opportunities is high in Africa but there are less successes in entrepreneurship, except in a few cases. Figure 1 shows the map of the innovation ecosystem and institutions, the data on the innovation ecosystem takes into account business dynamism, entrepreneurial culture, innovation capacity, multishareholder collaboration as well as interaction and diversity. The size of the circles shows the Innovation Ecosystem of the country -the bigger the circle is the better the innovation ecosystem. All the countries with big circles are also those countries with better institutions. Institutions are indicated by the colour., Dark blue indicates better institutions, and as the colour fades to lighter blue, this indicates countries with weaker institutions. The map shows a clear picture of weaker institutions in Africa, specifically Sub-Saharan Africa. We conducted a further test to verify whether institutions have a direct effect on the innovation ecosystem or not.

Figure 1. Map of the innovation ecosystem and institutions
Source: Own elaboration. The data come from The Global Competitive Report 2018.

Figure 2. Innovation Ecosystem
Source: Own elaboration Figure 2 shows that there is a linear relationship between institutions and the innovation ecosystem. With this as a basis, we wanted to discover the extent to which institutions influence businesses and patent activities in African economies. We took into consideration political stability to see if it is a determinant in the promotion of patent activity and business innovation in Africa.)

RESEARCH METHOD
The main purpose of our study is to study the impact of political stability on innovation in companies.
As dependent variables, we investigated the number of patent applications per resident -one of the main characteristics of innovation activity. The number of patents and R&D projects are considered to be the main characteristics of innovation activity (Ortiz-Villajos & Sotoca, 2018; Jaffe & Palmer, 1997). In this study we use patent applications as the dependent variable. We also identify the distortion effect of political stability on patent applications. To do this, we investigate the influence of such institutional factors as rule of law, financial freedom, and the percentages of Christians and Muslims in the populations.
To formulate and justify the scientific deficit, which our model is aimed at eliminating, we proposed the following hypothesis.
HO: The growth of political stability affects the number of patents submitted. Waguespack, et.al (2005) claims that political stability is a relevant factor for patent applications. In circumstances where political stability is the greatest, and hence political uncertainty is the lowest, one should expect a more aggressive pursuit of intellectual property rights. Hoti & McAleer (2006) show that political risk ratings have a considerable impact on innovative activities.
H1: A growth in confidence increases the number of patents submitted and positively influences the effect of political stability on Research and Development. Hoti &McAleer (2006) andPittawayetal.(2004) indicated that when there are fewer political risks and the political stability is higher the people's shared desire for creativity is increased because they know they can protect their patents from the risk of theft.

Basic Model
Since our dependent variable is a count variable, in order to get a true picture of our data, we take into account the work of Zeileis et al. (2008). In order to capture the relationship between the number of applications per resident and all regressors, we have applied the basic Poisson regression model. All coefficients are highly significant. However, as the Wald test results may be too optimistic due to a misspecification of the likelihood, we re-computed the Wald tests using the sandwich standard errors method. To confirm the over-dispersion of the dependent, we performed the dispersion test. The result of the test indicates over-dispersion. The results are presented below.
Over-dispersion test z = 5.3772, p-value = 3.782e-08 alternative hypothesis: true dispersion is greater than 1 sample estimates: dispersion 142.8274 Since the results of the over-dispersion test indicate over-dispersion in the dependent variable we used the negative binomial for further testing and reporting.
To analyze the effect of the variables in the study, we integrated GDP per capita into our models as a control variable. When we studied GDP, we did not pretend it to scientific novelty. We considered this variable only as a basic variable with a proven effect on patent application (Yuel, 2009), (Kolmakov et al. 2015), and (Khalili et al. 2016). Based on this database, we analyzed the investigated variables. We also considered education and unemployment as control variables.

Data
To investigate the problem identified, our data includes a panel of annual observations from 26 African countries from the years 1996-2016 with 567 observations. The reason for the selection of these countries is due to the availability of data, that is, the countries with no patents were excluded. Most of our data comes from the World Bank and WIPO.
The table below shows the basic statistics of the dependent and independent variables. Source: Own elaboration.   Table 3 above shows the results of the negative binomial model, which was identified as a fitting estimate because of the over-dispersed nature of the dependent variable. Model one tests the control variables on the dependent variable. All the factors indicate a strong positive relationship with the dependent variable. The only factor which had a different outcome to that which was expected was unemployment, which shows a positive effect on the number of patents. This can be explained by number of factors, but the most significant one is freedom of entrepreneurship because it tends to make people work more creatively to ensure the means of their subsistence in an uncertain economy.

ANALYSIS/STUDY DISCUSSION
Model 2 includes the control variables and the research variables. We realize that political instability is negatively significant, and that the rule of law is positively significant. Other factors, such as business freedom and openness to trade, are negatively significant while high technology export and financial freedom are positively significant.
In model 3 we added the two religious groups in Africa which are dominant, to determine how they influence political instability. The third model shows a reduction in the coefficient of political instability, from -0.973 to -0.813 and Islam plays a significant role here. However, the rule of law in the third model is not significant.
The role of institutions in determining the functionality of companies is something that cannot be neglected. Political uncertainty and changes in government are the main factors influencing the sustainability and development of the continent. Alesina et al. (1996) state that political instability has an effect on the economic performance of a country. This supports our first hypothesis: political instability negatively affects patenting activity. The data show that countries with poorly developed institutions have less patent applications per resident; this instability discourages investment and promotes emigration. Citizens have confidence in their country when there is stability, and this promotes growth and increases investors' appetite to invest in the economy. A lot of Africans prefer investing abroad because of the uncertainty. Instability increases the risk of any investment twice as much than in a stable country.
Rule of law positively influences a building of trust which therefore increases the willingness of people to innovate. When people have trust in their country, they feel safe. Rigobon et al. (2005) identified the rule of law as a positive factor for economic performance. Patenting is a way that innovators protect their intellectual property, so when a country has rules that are effective, it increases the trust of the citizens to produce more. The data makes it clear that when a country has efficient institutions the number of patents is also high.
Openness to trade has a negative effect on patenting activity, which is confirmed by the findings of Rigobon. This factor discourages the developed countries from any involvement in the developing countries as they face the problems related to weak institutions, political uncertainty and regulatory inconsistency. The above-mentioned factors must rather give way to transparency and accountability in governance, backed by a political will to ensure and promote regional integration and backward integration.

CONCLUSION
Our research was aimed at finding the effects of political instability on patent activity (Innovation). We also discovered that the confidence of people in their political system encourages innovation, investment and promotion of patent activities in businesses. When the political climate is favourable, it encourages entrepreneurs to explore opportunities in their own countries. Countries need to restructure their innovation approach by creating a good institutional environment.