Innovation and institutional quality: Evidence from OECD countries

Abstract

Focusing the effect of innovations on economic growth, the literature has not adequately cared about what determines the innovations or innovative capacity. However, policy makers and business leaders have accepted the need for creating platforms and institutions that promote innovative activities since it was accepted that innovations were the basic key to economic growth. This study focuses on the effect of institutions or institutional quality on the innovations. In this study where OECD countries have been selected as the sampling (1996–2015 period) and World Bank’s Worldwide Governance Indicators represent institutional quality while the number of patent application represents the innovation, the effect of institutional quality on the innovations has been examined through the methods of panel data analysis. Innovation is positively related to voice and accountability, political stability and rule of law while it is negatively related to control of corruption. Moreover, there has been no relationship determined between government effectiveness and regulatory quality and innovation. Findings of this study suggest that it is highly difficult to state what is the net effect of institutional quality on the innovations.

Keywords: Governance, innovation, institutions, institutional quality, patent, panel data analysis.