Do Institutions Impact Innovation?

Edinaldo Tebaldi and Bruce Elmslie

MPRA Paper from University Library of Munich, Germany

Abstract: This paper contributes to the literature on institutions and economic growth by conducting an empirical examination on the links between innovation and institutions. Using cross-country data and the instrumental variable method, this study finds that institutional arrangements explain much of the variation on patent production across countries. We find evidence that control of corruption, market-friendly policies, protection of property rights and a more effective judiciary system boost an economy’s rate of innovation. Most of the previous literature on institutional and economic performance finds a positive association between institutions and levels of income and between institutions and the transitional growth rates of per capita income; however an unambiguous empirical association between institutions and the steady state growth has not yet been established. Based on the theoretical model developed by Tebaldi and Elmslie (2006), which shows that the impacts of institutions on innovation spillover to the growth rate of GDP per capita, this paper shows evidence of a growth effect through innovation, i.e., institutions have a growth effect on income because institutional quality affects an economy’s rate of innovation, the engine of economic growth. Moreover, this study finds that controlling for institutional quality; geographic-related variables are not significant in explaining patent production. This paper also finds evidence to support the idea that in the long-run human capital accumulation is an important variable in shaping institutions.

Keywords: Institutions; innovation; economic growth (search for similar items in EconPapers)
JEL-codes: O33 O43 (search for similar items in EconPapers)
Date: 2008-02
New Economics Papers: this item is included in nep-ino, nep-ipr, nep-pr~ and nep-knm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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