The Impact of Institutions on Innovation
93 Pages Posted: 31 Jul 2016 Last revised: 20 Jul 2018
Date Written: January 18, 2018
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 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 amplified in counties with a developed banking sector, suggesting that financial development and inclusive institutions are complements in the production of innovation.
Keywords: Innovation, Patents, Institutions, Institutional Reform, Economic Growth
JEL Classification: G38, O31, O43, N13, K40
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