What Affects Innovation More: Policy or Policy Uncertainty?
Hong Kong University of Science & Technology - HKUST School of Business and Management
University of Hong Kong
Indiana University - Kelley School of Business - Department of Finance
HKU, Faculty of Business and Economics
February 24, 2014
We 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. Taken together, our results suggest that businesses adapt to different policies, but face a problem when they do not know which policy to adapt to. Our paper suggests that political compromise is a plus for innovation.
Number of Pages in PDF File: 49
Keywords: Innovation, Policy uncertainty, Policy, Patents, Political party
JEL Classification: D22, D72, D80, E66, F68, G38, H11, O31, O38, O57working papers series
Date posted: December 18, 2013 ; Last revised: May 12, 2014
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