The Impact of Innovation on Firm Productivity: New Evidence From the World Bank Enterprise Survey

Abstract This study evaluates the causal impact of innovation on firm productivity in the Middle East and North Africa (MENA) region, where economic structures and institutional frameworks differ from those in advanced economies. Drawing on World Bank Enterprise Survey data from Egypt, Jordan, Lebanon, Morocco, and Tunisia, the analysis employs the propensity score matching (PSM) method to estimate the productivity effects of innovation while minimizing selection bias. The findings reveal that innovation significantly improves firm productivity in Egypt, Jordan, Lebanon, and Morocco, with average treatment effects ranging from 28% to 44%. In Tunisia, the effect is positive but statistically insignificant, reflecting structural constraints such as limited access to finance, weak research-industry linkages, and rigid institutions. Further analysis shows that the productivity impact of innovation is heterogeneous across contexts: small firms in Egypt, Jordan, and Lebanon benefit the most, while medium-sized firms in Morocco and Tunisia record the strongest gains. Large firms display positive but generally insignificant effects, suggesting that innovation-driven productivity advantages are not evenly distributed across firm categories. These results underscore the need for context-specific innovation policies in the MENA region. Strengthening financial access, fostering collaboration between firms and research institutions, and tailoring strategies to firm characteristics are crucial for maximizing the productivity benefits of innovation. By focusing on emerging economies, this study contributes to the literature by providing new empirical evidence on the innovation–productivity nexus and highlights innovation as a key lever for competitiveness and sustainable growth in the region.