The cost of weak institutions for innovation in China

Andrés Rodríguez-Pose and Min Zhang

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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: J01 R14 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2020-04-01
New Economics Papers: this item is included in nep-cna, nep-ino, nep-isf, nep-sbm and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Published in Technological Forecasting and Social Change, 1, April, 2020, 153. ISSN: 0040-1625

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http://eprints.lse.ac.uk/103321/ Open access version. (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)
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