Date of Award

Spring 2005

Project Type

Dissertation

Program or Major

Economics

Degree Name

Doctor of Philosophy

First Advisor

Bruce T Elmslie

Abstract

This dissertation contributes to the literature by investigating the links between institutions and innovation from both a theoretical and an empirical standpoint. Specifically, this dissertation (i) develops a theoretical growth model that explicitly accounts for the influences of institutions on technical innovation and output production; (ii) specifies an empirical model suitable to examine the affect of institutions on technical innovation based on a theoretical model; and (iii) tests if different measures of institutions (i.e., Control of Corruption, Rule of Law, Regulatory Quality and Expropriation Risk) have differentiated impacts on innovation.

A major prediction of the theoretical model is that better institutional arrangements boost innovation and thus economic growth. The lack of right institutions will retard or prevent the utilization of newly invented inputs in the productive process, leading to relatively lower levels of output. Therefore, controlling for all other determinants of income, countries or regions that experience institutional constraints preventing the adoption of newly invented technologies will be expected to lag behind in terms of growth and levels of output per capita. Additionally, the theoretical model shows that this gap does not vanish over time. The model also predicts that in the steady state the stock of human capital should not be associated with the growth rate of output, but rather that the growth rate of human capital should be associated with the growth rate of output.

The empirical analysis uses cross-country data and instrumental variables in order to examine the influences of institutions on technical innovation. The results support the argument that institutions explain much of the variation on patent production across countries and this finding is consistent across countries that are both on and off the technological frontier. The empirical results also provide evidence that control of corruption, market-friendly policies, protection of private propriety and a more effective judiciary system have growth effects on income because institutional quality affects an economy's rate of innovation. Ultimately, innovation is the engine of economic growth. This study also finds evidence that geography, per se , does not explain innovation across countries. Geography affects innovation, but only through institutions.

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