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Roles of Formal Institutions and Social Capital in Innovation Activities: A Cross-Country Analysis

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  • Weng Chang Lee
  • Siong Hook Law

Abstract

This paper investigates the roles of formal institutions and social capital in countries’ innovation activities. The sample consists of 62 developed and developing countries, using the ordinary least squares robust standard error estimations, instrumental variable (IV) estimators, and quantile regression. The empirical results indicate that formal institutions and social capital complement one another in influencing countries’ innovations level. In terms of the relative importance of both in promoting innovation activities, the social capital has greater role compared to formal institutions. Furthermore, the empirical result suggests that innovation level tends to be higher in countries with higher social capital. We also use the quantile regression to estimate whether the relationship among formal institutions, social capital, and innovation differs at different points in the conditional distribution of innovation. The results demonstrate that formal institutions yield a significant positive impact only after exceeding in 50th quantile, whereas social capital do so at lower 10th quantile. Therefore, in addition to a policy focus on improving the formal institutions, countries with a low level of innovation should enrich social capital in their promotion of innovation activity.

Suggested Citation

  • Weng Chang Lee & Siong Hook Law, 2017. "Roles of Formal Institutions and Social Capital in Innovation Activities: A Cross-Country Analysis," Global Economic Review, Taylor & Francis Journals, vol. 46(3), pages 203-231, July.
    • Handle: RePEc:taf:glecrv:v:46:y:2017:i:3:p:203-231
    DOI: 10.1080/1226508X.2017.1292859
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    Cited by:

    1. Hu, Haiqing & Wei, Wei & Chang, Chun-Ping, 2022. "Examining the impact of extreme temperature on green innovation in China: Evidence from city-level data," Energy Economics, Elsevier, vol. 114(C).
    2. Teimuraz Gogokhia & George Berulava, 2021. "Business environment reforms, innovation and firm productivity in transition economies," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 11(2), pages 221-245, June.
    3. Amjad Naveed & Ghulam Shabbir, 2022. "Effect of Formal and Informal Institutional Indicators on Innovation Activities: An Empirical Analysis for a Global Sample," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 164(2), pages 665-691, November.
    4. Ajax Persaud & Javid Zare, 2023. "Institutional varieties, governance quality, and firm‐level innovation in emerging economies: Case of India," Growth and Change, Wiley Blackwell, vol. 54(1), pages 234-259, March.
    5. Chor Foon Tang & Ali Fakih & Salah Abosedra, 2022. "The Fatality Rate of COVID-19: How Does Education, Health Infrastructure and Institutional Quality Make a Change?," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 16(2), pages 166-182, May.
    6. Zheng, Mingbo & Feng, Gen-Fu & Feng, Suling & Yuan, Xuemei, 2019. "The road to innovation vs. the role of globalization: A dynamic quantile investigation," Economic Modelling, Elsevier, vol. 83(C), pages 65-83.
    7. Mateusz Borkowski, 2023. "Social Capital and Economic Development: PLS-SEM Model," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 2, pages 11-27.
    8. Hameeda A. AlMalki & Christopher M. Durugbo, 2023. "Systematic review of institutional innovation literature: towards a multi-level management model," Management Review Quarterly, Springer, vol. 73(2), pages 731-785, June.
    9. Zhang, Liangliang & Huang, Shoujun, 2022. "Social capital and regional innovation efficiency: The moderating effect of governance quality," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 343-359.
    10. Wei Cui & Insook Cho, 2019. "Household’s Happiness and Financial Market Participation," Global Economic Review, Taylor & Francis Journals, vol. 48(4), pages 396-418, October.
    11. Wang, Chenguang & Qiao, Cuixia & Ahmed, Rahil Irfan & Kirikkaleli, Dervis, 2021. "Institutional Quality, Bank Finance and Technological Innovation: A way forward for Fourth Industrial Revolution in BRICS Economies," Technological Forecasting and Social Change, Elsevier, vol. 163(C).
    12. Zheng, Mingbo & Feng, Gen-Fu & Jang, Chyi-Lu & Chang, Chun-Ping, 2021. "Terrorism and green innovation in renewable energy," Energy Economics, Elsevier, vol. 104(C).
    13. Zhao, Xin-Xin & Zheng, Mingbo & Fu, Qiang, 2022. "How natural disasters affect energy innovation? The perspective of environmental sustainability," Energy Economics, Elsevier, vol. 109(C).
    14. Song Wang & Jiexin Wang & Chenqi Wei & Xueli Wang & Fei Fan, 2021. "Collaborative innovation efficiency: From within cities to between cities—Empirical analysis based on innovative cities in China," Growth and Change, Wiley Blackwell, vol. 52(3), pages 1330-1360, September.
    15. Uzuegbunam, Ikenna & Geringer, J. Michael, 2021. "Culture, connectedness, and international adoption of disruptive innovation," Journal of International Management, Elsevier, vol. 27(1).
    16. Zheng, Mingbo & Feng, Gen-Fu & Wang, Quan-Jing & Chang, Chun-Ping, 2023. "Financial globalization and technological innovation: International evidence," Economic Systems, Elsevier, vol. 47(1).
    17. Panagiota Papadimitri & Fotios Pasiouras & Menelaos Tasiou, 2021. "Do National Differences in Social Capital and Corporate Ethical Behaviour Perceptions Influence the Use of Collateral? Cross-Country Evidence," Journal of Business Ethics, Springer, vol. 172(4), pages 765-784, September.

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