Innovation, Institutions, and Entrepreneurship
29 Pages Posted: 4 Feb 2016 Last revised: 7 Sep 2016
Date Written: February 3, 2016
Abstract
The literature has emphasized the role of market institutions in fostering entrepreneurship with a purpose of examining entrepreneurship and growth. However, the real driving force is innovation, not entrepreneurship, and many studies treat entrepreneurship as only a proxy for innovation. We use the Global Innovation Index to directly measure the effect of market institutions on innovation and find a very strong positive correlation. We also find that the effect of market institutions on innovation becomes stronger in developed economies and democracies but is unrelated to education. Lastly, the legal system, sound money, and free trade contribute the most to innovation.
Keywords: entrepreneurship, innovation, institutions
JEL Classification: M13, O17, O31
Suggested Citation: Suggested Citation