Inclusive Institutions, Innovation and Economic Growth: Estimates for European Countries

Abstract

This paper investigates empirical linkages amongst inclusive institutions, innovation and economic growth in the European context. We follow as a theoretical framework a non-scale R&D-based growth model. In the baseline model, negative institutional externalities not only affect the productivity of private and human capital, but also constrain the diffusion of existing technological knowledge. In turn, these negative externalities reduce economic growth. We run estimates for a sample of European Union countries to contribute to the discussion on the growth strategy to recover from the ongoing crisis. Empirical analysis confirms the importance of technology as an instrument for increasing economic growth in European countries and suggests the existence of a positive relationship between inclusive institutions and innovation and economic growth.

Keywords: Innovation, economic growth, institutions

JEL Classification: O30, O41, O43