Institutions and Innovation

Posted: 10 Dec 2020

See all articles by Jie (Jack) He

Jie (Jack) He

University of Georgia

Xuan Tian

Tsinghua University - PBC School of Finance

Date Written: November 2020


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. Second, we review papers that focus on the role of demographic characteristics in innovation. Third, we describe studies examining the relation between market development and firms’ incentives as well as their ability to engage 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 article aims to provide a synthetic and evaluative review 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.

Suggested Citation

He, Jie (Jack) and Tian, Xuan, Institutions and Innovation (November 2020). Annual Review of Financial Economics, Vol. 12, pp. 377-398, 2020, Available at SSRN: or

Jie (Jack) He

University of Georgia

Athens, GA 30602-6254
United States

Xuan Tian (Contact Author)

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing 100083
+86-10-62794103 (Phone)


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