Contract Enforcement and R&D Investment
37 Pages Posted: 22 Jun 2013
Date Written: June 22, 2013
Abstract
Motivated by the differences in innovation intensity across countries, this paper evaluates the role of contract enforcement for R&D investments. If contracts for inputs are incomplete and contract enforcement is weak, innovative companies can be exploited by their suppliers. This reduces the incentive to invest in R&D. We find evidence supporting this prediction in the data: R&D investment increases with the quality of the judicial system and this effect is particularly strong in industries that depend more on bilateral contracts to acquire inputs and in which vertical integration is not a viable option.
Keywords: R&D Investment, Contract Enforcement, Legal Institutions
JEL Classification: O30, O43, P48
Suggested Citation: Suggested Citation
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