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The impact of institutions on innovation

Subject

Finance

Publishing details

Social Sciences Research Network

Authors / Editors

Donges A; Meier J-M A; Silva R

Publication Year

2016

Abstract

This paper studies the impact of institutional reforms on innovation. We use the timing and geography of the French occupation of different regions of Germany after the French Revolution of 1789 as an exogenous shock to the institutions of those regions. Combining novel county-level data on Imperial Germany with data on patents per capita, we show that counties whose institutions are more inclusive as a result of the French occupation become more innovative. The institutional reforms that are associated with comparing a county with no occupation to a county with the longest occupation, result in a 129% increase in the number of patents per capita. This result is robust to alternative explanations, such as reverse causality, human capital and financial development. Our findings point to institutions as a first order determinant of innovation and highlight the role of innovation as a key mechanism through which institutions may lead to economic growth.

Keywords

Innovation; Patents; Institutions; Institutional reform; Economic growth

Series

Social Sciences Research Network