Institutions and Innovation: Evidence from Countries at Different Stages of Development

In: The Pakistan development review: PDR, Band 56, Heft 4, S. 297-317

Abstract

This paper empirically analyses the impact of institutions,
both formal and informal, on innovation performance of sampled countries
at different stages of development. Data of 72 sampled countries on
Research and Development Expenditures, numbers of article published,
human capital, trade openness, internet users are collected from United
Nations Educational, Scientific and Cultural Organisation (UNESCO),
International Country Risk Guide (ICRG) and World Bank database. Formal
and informal institutions indexes are constructed using data from
Country Risk Guide and The World Value Survey (WVS). Fixed effect and
System GMM technique are used to estimate the dynamic relationship
between innovation performance and institutional indexes. The study
finds positive significant effect of institutions on innovation in case
of aggregate sample of developed and developing countries. However, the
effects of formal institutions are more significant in case of sample of
developed countries, while in developing countries informal institutions
are found more effective than formal institutions in affecting
innovation performance. The results also show that both formal and
informal institutions are supplementary to each other in case of
developing countries. Therefore, it is suggested that focus should be
given to informal institutions. Moreover, collective initiatives be
encourage in developing countries to have diverse ideas from different
sectors of the countries. In addition, developing countries should
initiate collaborative research projects with technologically advanced
countries research and education institutions so as to learn from each
other's ideas and experiences. Keywords: Formal Institutions, Informal
Institutions, Innovation