Abstract

http://ssrn.com/abstract=2368587
 


 



What Affects Innovation More: Policy or Policy Uncertainty?


Utpal Bhattacharya


Hong Kong University of Science & Technology - HKUST School of Business and Management

Po-Hsuan Hsu


University of Hong Kong

Xuan Tian


Indiana University - Kelley School of Business - Department of Finance

Yan Xu


HKU, Faculty of Business and Economics

November 13, 2014


Abstract:     
We develop a simple model and empirically examine whether it is policy or policy uncertainty that affects technological innovation, using a large sample of 43 countries that have had various policy changes because of national elections. We find that innovation, captured by growth in patent counts, citations, and originality, is not affected by which policy (left, right, or center) is in place. Innovation, however, drops significantly during times of policy uncertainty measured by national elections. To establish causality, we use close presidential elections, whose timings are pre-determined and results are unpredictable, and ethnic fractionalization that are likely exogenous to policy and policy uncertainty. We further show that the decrease in individuals’ and organizations’ incentives to innovate during times of policy uncertainty is a possible underlying mechanism through which policy uncertainty stifles innovation. Taken together, our results confirm the predictions of our theoretical model, which is that businesses adapt to different policies, but face a problem when they do not know which policy to adapt to. Political compromise, our paper concludes, is a plus for innovation.

Number of Pages in PDF File: 56

Keywords: Innovation, Policy uncertainty, Policy, Political party

JEL Classification: G18, G38, O31, D80, E66

working papers series





Download This Paper

Date posted: December 18, 2013 ; Last revised: November 13, 2014

Suggested Citation

Bhattacharya , Utpal and Hsu, Po-Hsuan and Tian, Xuan and Xu, Yan, What Affects Innovation More: Policy or Policy Uncertainty? (November 13, 2014). Available at SSRN: http://ssrn.com/abstract=2368587 or http://dx.doi.org/10.2139/ssrn.2368587

Contact Information

Utpal Bhattacharya (Contact Author)
Hong Kong University of Science & Technology - HKUST School of Business and Management ( email )
Clear Water Bay
Kowloon
Hong Kong
Po-Hsuan Hsu
University of Hong Kong ( email )
Pokfulam Road
Hong Kong
China
Xuan Tian
Indiana University - Kelley School of Business - Department of Finance ( email )
1309 E. Tenth Street
Bloomington, IN 47405
United States
812-8553420 (Phone)
824-8555875 (Fax)
HOME PAGE: http://kelley.iu.edu/tianx

Yan Xu
HKU, Faculty of Business and Economics ( email )
Pok Fu Lam Road
Hong Kong
Hong Kong
Feedback to SSRN


Paper statistics
Abstract Views: 925
Downloads: 242
Download Rank: 74,163
Paper comments
No comments have been made on this paper

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo7 in 0.328 seconds