The Impact of Institutions on Innovation

93 Pages Posted: 31 Jul 2016 Last revised: 23 Sep 2019

See all articles by Alexander Donges

Alexander Donges

University of Mannheim - Department of Economics

Jean-Marie Meier

University of Texas at Dallas

Rui Silva

NOVA School of Business and Economics; Centre for Economic Policy Research (CEPR)

Date Written: June 25, 2019

Abstract

We study the impact of inclusive institutions on innovation using novel, hand-collected, county-level data for Imperial Germany. We use the timing and geography of the French occupation of different German regions after the French Revolution of 1789 as an instrument for institutional quality. We find that the number of patents per capita was more than twice as high in counties with the longest occupation as in unoccupied counties. The impact of institutions on innovation is stronger in counties with a highly developed financial sector, suggesting that financial development and inclusive institutions are important complements for the production of innovation. We show that the increase in patenting activity due to better institutions translates into higher economic growth. Our findings highlight inclusive institutions as a first order determinant of innovation.

Keywords: Innovation, Patents, Institutions, Institutional Reform, Economic Growth

JEL Classification: G38, O31, O43, N13, K40

Suggested Citation

Donges, Alexander and Meier, Jean-Marie and Silva, Rui, The Impact of Institutions on Innovation (June 25, 2019). Available at SSRN: https://ssrn.com/abstract=2815541 or http://dx.doi.org/10.2139/ssrn.2815541

Alexander Donges

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany

HOME PAGE: http://donges.vwl.uni-mannheim.de/

Jean-Marie Meier (Contact Author)

University of Texas at Dallas ( email )

Jindal School of Management
800 W. Campbell Road
Richardson, TX 75080
United States

HOME PAGE: http://www.jean-mariemeier.com/

Rui Silva

NOVA School of Business and Economics ( email )

Rua da Holanda, no. 1
Carcavelos, 2775-405
Portugal

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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