Institutions and Innovation: A Literature Review of the Impact of Public R&D and Financial Institutions on Firm Innovation
49 Pages Posted: 23 Nov 2010
Date Written: November 22, 2010
Abstract
Institutions and the environment matter for innovation, but which institutions matter more? How do they matter at a more micro-level? It is clear from work in institutional economics that the levels and modes of innovative and entrepreneurial activity should be affected by the surrounding institutions (Licht, Siegel 2006, Busenitz, Gomez, Spencer 2000). Institutions can help alter the constraints and structure of incentives in a society to direct self-interested behavior towards either more or less economically productive activities (Baumol 1990, Nee 1996). New opportunities open up as emerging economics undertake the shift from redistributive bureaucracy to open markets (Nee 1996), but we still lack an understanding of which shifts are more important for increasing technological innovation. The environment for entrepreneurship along with differences in technological opportunities, the characteristics of economic spillovers between universities and private firms, along with cultural factors can impact the level and types of entrepreneurial activity occurring. Yet currently we have a limited understanding of these factors. This paper focuses specifically on the impact of two broad institutions: financial and public R&D institutions.
Keywords: institutions, innovation, public R&D
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