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Ethnolinguistic diversity, quality of local public institutions, and firm-level innovation

Chiara Natalie Focacci, Mitja Kovac and Rok Spruk

International Review of Law and Economics, 2023, vol. 75, issue C

Abstract: Institutional quality is crucial for innovation and economic growth. In this article, we exploit historical linguistic differences across Slovenian municipalities between the Italian, German, and Slovenian-speaking population prior to World War 1, as a plausible exogenous source of variation in firm-level innovation to estimate the effect of institutional quality on innovation. Employing a set of limited dependent variable and instrumental variable models, we show that greater historical exposure to multilingualism is associated with markedly better quality of government and provision of public goods, more impartial local government administration, and lower prevalence of corruption, which in turn predicts systematically more vibrant economic activity, greater economic complexity, and higher rates of firm-level innovation at the local level. The estimated effects are robust to a variety of specification checks and do not appear to be sensitive to the choice of ethnic and linguistic diversity measures.

Keywords: Corruption; Economic history; Firms; innovation; Productivity; Institutions (search for similar items in EconPapers)
JEL-codes: N1 O30 O43 R1 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:irlaec:v:75:y:2023:i:c:s0144818823000339

DOI: 10.1016/j.irle.2023.106155

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