The cost of weak institutions for innovation in China

Rodríguez-Pose, Andrés and Min Zhang
Authors registered in the RePEc Author Service: Andrés Rodríguez-Pose

No 14399, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Does the variation in the quality of local government institutions affect the capacity of firms to innovate? This paper uses a unique dataset that combines the specific features of 2,700 firms with the institutional and socioeconomic characteristics of the 25 cities in China where they operate, in order to assess the extent to which institutional quality – measured across four dimensions: rule of law, government effectiveness, corruption, and regulatory quality – affects both the innovation probability and intensity of firms. The results of the econometric analysis show that poor institutional quality in urban China is an important barrier for firm-level innovation. In particular, a deficient rule of law, high corruption, and a weak regulatory quality strongly undermine firm-level innovation. The role of these factors is far more limited in the case of innovation intensity. Better institutions also reduce the amount of time firms spend dealing with government regulations in order to facilitate innovation. The results also indicate that the cost of weak institutions for innovation is higher for private than for state-owned firms, at least in the early stages of innovation. In general, differences in institutional quality generate local urban ecosystems that impinge on the propensity of firms to innovate.

Keywords: Innovation; Institutions; Government quality; Firms; Cities; China (search for similar items in EconPapers)
JEL-codes: H1 O3 O31 (search for similar items in EconPapers)
Date: 2020-02
New Economics Papers: this item is included in nep-ino, nep-law, nep-sbm, nep-tid, nep-tra and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (38)

Downloads: (external link)
https://cepr.org/publications/DP14399 (application/pdf)

Related works:
Journal Article: The cost of weak institutions for innovation in China (2020)
Working Paper: The cost of weak institutions for innovation in China (2020)
Working Paper: The cost of weak institutions for innovation in China (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:14399

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP14399

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().