Patent Intensity and Concentration: The Effect of Institutional Quality on MSA Patent Activity

Abstract

Patented innovation is a predominately local phenomena. It is also an indicator of economic growth. Using data on U.S. metropolitan statistical areas (MSAs), we examine the long-run effect of economic freedom, and each of its three components, on local patent activity. We find that increased government spending is associated with reduced individual patent activity, though this effect is small in magnitude. Our strongest results suggest that increased economic freedom significantly reduces patent concentration in both ownership and product types. This suggests that economic freedom creates an environment conducive to diverse and diffused innovation. Our main results are robust to a quantile regression instrumental variable analysis.

Keywords: patents, innovation, institutions, economic freedom

JEL Classification: O3, O43, D63