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Quality of pro-market national institutions and firms’ decision to invest in R&D: evidence from developing and transition economies

Author

Listed:
  • Fulvio Castellacci

    (University of Oslo)

  • Prince C. Oguguo

    (Grenoble Ecole de Management)

  • Isabel Maria Bodas Freitas

    (Grenoble Ecole de Management)

Abstract

Does institutional quality affect firms’ decision to invest in R&D? This paper investigates the idea that well-functioning pro-market institutions spur firms’ R&D propensity by reducing transaction costs and uncertainties related to research and innovation activities. Evidence from the World Bank Enterprise Surveys on a large sample of firms in 57 developing and transition economies between 2002 and 2017 corroborates this idea. Controlling for countries’ level of economic development, industry fixed effects and a number of firm-level characteristics, the results show that firms’ propensity to invest in R&D is higher in countries in which national institutions ensure socio-political stability and enforcement of law and contracts.

Suggested Citation

  • Fulvio Castellacci & Prince C. Oguguo & Isabel Maria Bodas Freitas, 2022. "Quality of pro-market national institutions and firms’ decision to invest in R&D: evidence from developing and transition economies," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 12(1), pages 35-57, March.
    • Handle: RePEc:spr:eurasi:v:12:y:2022:i:1:d:10.1007_s40821-022-00202-7
    DOI: 10.1007/s40821-022-00202-7
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