Institutions and Innovation: A Review of Recent Literature

Abstract

Technological innovation is critical to a country’s economic development and a firm’s long-term success. This article reviews the recent literature that links institutions and innovation. Specifically, we focus on five aspects of the linkage. First, we discuss the literature that explores how the culture of a society or a corporation influences the process, features, and outcomes of innovation activities. We then review papers that focus on the role of demographic characteristics in innovation. The third section of the article covers studies examining the relation between market development and firms’ incentives as well as their abilities of engaging in innovative investments. Fourth, we discuss the literature on how innovation is shaped by a nation’s laws and policies. Finally, we review the academic papers regarding the effects of government regulations and policies on innovation activities. Overall, this survey aims to provide a synthetic and evaluative monograph of recent academic research that links various aspects of institutions and innovation. We also provide our views on potential directions for future research in this area.

Keywords: innovation, institutions, survey, culture, demographics