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Do Institutions Impact Innovation?

  • Tebaldi, Edinaldo
  • Elmslie, Bruce

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.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8757.

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Date of creation: Feb 2008
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Handle: RePEc:pra:mprapa:8757
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  1. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
  2. Daron Acemoglu & Simon Johnson & James Robinson, 2004. "Institutions As The Fundamental Cause Of Long-Run Growth," DOCUMENTOS CEDE 002889, UNIVERSIDAD DE LOS ANDES-CEDE.
  3. Xavier Sala-i-Martin, 2002. "15 Years of New Growth Economics: What Have We Learnt?," Working Papers Central Bank of Chile 172, Central Bank of Chile.
  4. Daron Acemoglu & Simon Johnson & James A. Robinson, 2000. "The Colonial Origins of Comparative Development: An Empirical Investigation," NBER Working Papers 7771, National Bureau of Economic Research, Inc.
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  9. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
  10. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross-Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
  11. Daron Acemoglu & Simon Johnson, 2003. "Unbundling Institutions," NBER Working Papers 9934, National Bureau of Economic Research, Inc.
  12. Knack, Stephen & Keefer, Philip, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1251-88, November.
  13. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  14. Griliches, Zvi, 1990. "Patent Statistics as Economic Indicators: A Survey," Journal of Economic Literature, American Economic Association, vol. 28(4), pages 1661-1707, December.
  15. Jeffrey D. Sachs, 2000. "Tropical Underdevelopment," CID Working Papers 57, Center for International Development at Harvard University.
  16. Stanley L. Engerman & Kenneth L. Sokoloff, 2003. "Institutional and Non-Institutional Explanations of Economic Differences," NBER Working Papers 9989, National Bureau of Economic Research, Inc.
  17. Esfahani, Hadi Salehi & Ramirez, Maria Teresa, 2003. "Institutions, infrastructure, and economic growth," Journal of Development Economics, Elsevier, vol. 70(2), pages 443-477, April.
  18. Jones, Charles I, 1995. "R&D-Based Models of Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 759-84, August.
  19. Kormendi, Roger C. & Meguire, Philip G., 1985. "Macroeconomic determinants of growth: Cross-country evidence," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 141-163, September.
  20. Chenggang Xu & Haizhou Huang, 1999. "Institutions, innovations, and Growth," IMF Working Papers 99/34, International Monetary Fund.
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  24. repec:fth:harver:1473 is not listed on IDEAS
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