University of Groningen Faculty of Economics and Business
Political Institutional Structures, Absorptive Capacity and Innovations: A Cross-Country Analysis
Name Student: Rong Tang Student ID number: S2151464 Student email: r.tang@student.rug.nl Date Paper: January 17, 2014
Abstract
This study investigates the role of political institutions in innovative activities over a ten-year period within 72 countries, and further exams the joint effects of political institution and a country’s absorptive capacity on innovations. By classifying countries based on the extent of political democracy, the results reveal that a country characterized by a democratic regime generate a higher level of basic innovation, whereas a country characterized by an autocratic regime results in a reduction of basic innovation. Also, findings suggest that a democratic country contributes to basic innovation by improving its absorptive capacity. On the other side, evidence shows that an autocratic regime enhances a greater level of applied innovation. This suggests that firstly, an autocratic country which is dominated by ‘political elites’ (i.e. state-run large enterprises) put efforts on research to solve practical problems: applied innovation, and secondly, the polity freedom is not helpful to generate applied innovations.
1. Introduction
democracy regime paves the way for technological changes by reducing the friction in cultural and social aspects. For instance, the first “industrial revolution” was accompanied with the civil war in England, which established a more democratic regime. Later on the democratic political institutional structure diffused into Europe and America. This creates a pre-condition for industrial revolution.
As commonly recognized, there is a coevolution relationship between the absorptive capacity and innovation (Castellacci & Naterab, 2013). Absorptive capacity is an ability of a country to identify or exploit knowledge from environment (Cohen & Levinthal, 1989). An environmental capacity restricts or helps the absorptive capacity. This paper further investigates an interactive effect of political institutional structures and absorptive capacity on innovation activities. First, political institutional structures have capability to influence the distribution of resources through rules or laws. Thus, the level of absorptive capacity may also have different influence on innovation performances under different political institutional structure. Second, a majority of population who has perceived well education will enlarge the participation in a solution to problems. Thus, well -educated people could make a democratic regime sustainable and may further generate more innovations.
by diversified political institutional structure might have different distribution of resources on innovative activities. Besides, the technological change differs across countries in terms of different types of innovation. Some countries are more advanced in terms of basic research relative to other countries.
The research questions of this paper are presented: 1) Do political institutional structures have an influence on forming new technologies? 2) To what extent political institution structures have a positive influence on forming new technologies? 3) Is there a mutual effect of political institutional structure and absorptive capacity on innovative activities? If so, to what extent it will influence the innovation performances?
The aim of this paper is going to investigate the impact of political institutional structures on innovation performances, and further to see under different political institutional structures, whether there is a change in impact of absorptive capacity on innovative activities. The first section will demonstrate political institutional structures, absorptive capacity, and innovations respectively. In addition, we will demonstrate the theoretical framework between three concepts. The second section is going to present the empirical model, data and method. In third section, we will analyze the results of estimation and discuss about the results. The last section is the conclusions and limitation of this paper.
2. Literature Review
2.1 Political Institutional Structures
achieve a generalized result that all political actors accept or compromise. In other words, the political institutional structure not only has a function of making a generalized regularity, but also has a function of preventing the political exchanges beyond the certain limits. Ark (1975) described political institutional structure as a “pattern of the flow of political exchanges.”
From a perspective from Gates and his colleagues (2006), political institutional structures can be categorized into three types: a democratic type, an autocratic type and an inconsistent type (that is, an institutionally inconsistent political system). Distinguishing whether a political institutional structure is democratic or dictatorship through three principles: 1) The chief executive must be elected; 2) The legislature must be elected; 3) There must be more than one party (Przeworski et al., 2000). Once three conditions are satisfied, the political institutional structure is considered to be democratic. On the contrary, if being against any of three principles, the political institutional structure is regarded as an autocracy type.
2.2 Innovations
Innovation improves our standard of living through applying theoretical knowledge of scientific and research to the entrepreneurial activities. In the application process of innovations, two kinds of innovative activities are going to be highlighted: basic innovation and applied innovation.
According to the definition from OECD (2002), basic research refers to experimental or theoretical work undertaken primarily to acquire new knowledge of the underlying foundation of phenomena and observable facts, without any particular application or use in view. Applied research is also original investigation undertaken in order to acquire new knowledge. It is, however, directed primarily towards a practical aim or objective.
interest, and conducted to realize an economic or political goal. In short, the applied research plays an instrumental role to solve the practical problems set by politics. Basic research depends on independence from politics to work well and eventually to enlighten policy makers.
There is an issue concerned about the resources distribution of different types of innovation based on different purposes. For instance, a country with a strong military capability is prone to largely invest in development of defense technology. Similarly, a country with high global share in high tech industry such as pharmaceuticals, chemicals, etc. is more willing to have large investment in basic research in related fields. T herefore, the development of two types of innovation is changed with economic and political need of a country.
Furthermore, we take both types of innovation into account because the development of applied innovation is on basis of accumulation of basic innovation. As argued by Pavitt and Patel (1999), “the efforts on radical innovations create the stocks of knowledge that set the stage for subsequent applied research.” Although in the short run applied innovation is easier to generate a greater level of innovations than basic innovations, applied innovation assimilates and exploits stocks of knowledge created in basic research activities to develop new products (Henard & McFadyen, 2005).
gains of latecomers are derived from applied innovation rather than basic innovation. For example, South Korea introduces new-to-world products or services by large R&D investment, but these products or services are considered as ‘the applied end of the near-market development’. They still need the help from the basic research of electronics and information technology which are mostly achieved in lead countries. Similar findings were observed in China and India (Schmitz et al., 2008). A lot of IT-related jobs have been offshored to China and India. However, most of offshored jobs are created in the stage of production rather than pre- or post-production which is involved in radical innovations.
2.3 Political Institutional Structures and Innovations
activities) in a country.”
To be specific, in the framework of National Innovation System, government has capability to influence innovative activities through two ways: 1) forming and implementing the law, social norms, policies and educational system; 2) coordinating among enterprises, universities and public research institutes. A democratic decision made for a society reflects a tradeoff among different political actors’ advices. There is more participation in defining the policies, norms, and routines that regulate interactions between individuals, groups, and organizations. Those interactive effects may influence how innovative activity is organized. Moreover, the effective policy helps the information or knowledge transferring efficiently by coordination among enterprises, universities and public research institutes. For example, in Finland, a business program was established by cooperation among a state-run technology research institution, Oulu University. The program provided about 100,000 square meters of laboratory and office space to attract successful young businesses and new start-ups (Shaw, 2001). With the help of national research center, the technology exchange among these institutions becomes more efficiently and contributes the program to generating more innovations.
political institutional system.
Previous findings confirm that either a democratic or an autocratic political institutional structure is the most stable political institutional structure (Gurr, 1974; Muller & Weede, 1990; Sanhueza, 1999). Governed by a democratic or an autocratic political institutional system, a set of institutions have capability to mutually reinforce and bolster each other so that there is a high consistency to perpetuate the regime. Nonetheless, we think that the innovation capability of under an autocratic regime is lower than it under a democratic regime. In the case of an autocratic regime, a political leader’s primary incentive is to maximize current power and its authority so that availability of resource for innovation is unevenly distributed and mostly controlled by the ‘political elites’ of the country. As Mueller and his colleges (1990) argued, institutional conditions influence the availability of resources. U nder a democratic regime, the available resources flow to different fields of research. The resources for innovation are allocated by the decision of political actors to some fields where the resources are required, thus, the utilities of the resources are maximized and well distributed for generating more innovations. However, an autocratic regime forces the resources for innovations stay static and even may waste those available resources.
At organizational level, previous researches find that firms can exploit better chances of survival in a stable environment (Hannan & Freeman, 1984; March, 1991). Similarly, recent findings suggest that “a turbulent environment undermines exploration efforts because it not only devalues prior knowledge but also degrades new knowledge generated via exploration” (Kim & Rhee, 2009; Levinthal & Posen, 2009).
investment in terms of money and time. Especially, the basic research is a result of accumulation, which is not possibly completed in a very short period. There are two sources of financial support for basic innovative activities. One is from the individual firms who pursue for long term profits, and the other is from state sponsorship. The objective of public investment in basic research is not to seek for maximal economic rents by exploring scientific knowledge for commercial implementations in a short time. A finding from Dasgupta and David (1994) demonstrated that research institutions specializing on basic research by state sponsorship are “functionally quite well suited to maximize the long-run growth of the stock of scientific knowledge”. Moreover, Wealthy countries are also democratic. This statement has been proved by Barro (1999) and Przeworski (2000). Thus, a democratic country with a big fortune is more likely to provide a sustainable governmental support for basic innovative activities in aspects of finance and policy.
not just new knowledge but also the ability of society to access this knowledge, use it, improve it, and find new applications and combinations for it” (Mokyr, 2002). A democratic political institution provides the society an access to the knowledge and the appliances of knowledge.
The previous empirical research from Broberg and his colleagues (2013) investigates the relationship between political institutional structures and innovative activities cross developed countries. They employ alternative dimension of political institutional structure based on varieties of capitalism: respectively, State Corporatist Structures such as Germany and Japan, Social Corporatist Structures such as Denmark, State Nations such as France and Spain, and Liberal Pluralist Structures such as the U.S. and UK. The results indicate that countries with political institutional structures characterized by weak state authority and corporatist societies (such as the U.S. and UK) generate greater levels of basic innovative activity; countries with national political institutions typified by strong state authority and corporatist societies (such as Germany and Japan) were found to create higher levels of applied innovative activity. The other empirical research by Berner (2002) reveals that a wealthy and democratic country favors the patent protections.
Therefore, on basis of above discussion, we come up with the first and the second hypothesis which are presented as follow:
H1: The political institutional structure identified as a democratic regime has a positive effect on basic innovation.
2.4 Absorptive Capacity
Absorptive capacity refers to an ability of a country to identify or exploit knowledge from environment (Cohen & Levinthal, 1989). Technological incongruence exists across countries in aspects of resource availabilities, factor suppliers, market scales, or human capitals (Abramovitz, 1986 and Abramovitz, 1994). Improving absorptive capacity reduces the technological incongruence between technologically advanced countries and poor countries. The previous literature has developed a stylized notion of absorptive capacity. Absorptive capacity is usually proxied by human capital or complementary infrastructures of a country to imitate and absorb foreign advanced technologies (Nelson & Phelps, 1966; Verspagen, 1991; Benhabib & Spiegel, 1994; Papageorgiou, 2002; Stokke, 2008).
2. 5 Joint Impacts of Absorptive Capacity and Political Institutional Structure
support a basic education system to equalize the distribution of education resources. In contrast, under an autocratic regime the “elite group” has an access to education resources relative to others. Thus, the overall education level could be improved in a country with a more democratic regime. In other words, the autocratic regime may restrict the absorptive capacity.
Furthermore, to sustain a democratic regime and defeat dictatorship a country requires the dispersed population have skills and motivation to work collaboratively (Glaeser, 2009). In other words, a country needs well-educated human capital to sustain a democratic regime. Education gives people knowledge and skills so that people are able to engage in the social groups and work collaboratively. The capability of working together will shape democracy and beat dictatorship. If an overall educational level in a country is relatively lower, the solution to problem is dominated by the minority of specialists. This may exclude the opinions from people who are involved in this social or economic problem. With an increase of educational level, expertise with knowledge and skills will be available for innovation throughout society. The solution to the problem will be a result of a collaborative work by expertise in different fields. Human capital with high quality will enlarge the participation in generating a solution to the problem. As argued by Glaeser (2009) enlargement of participation and collaborative work are helpful to the development of democracy.
Therefore, based on above discussion, two hypotheses are presented as following:
H3: The political institution structure characterized as democracy strengthens the positive effect of absorptive capacity on basic innovation.
effect of absorptive capacity on applied innovation.
3. Data and Methods
3.1 Measure of Innovative Activities
To include two types of innovative activities, we use the number of scientific and technical journal articles as proxy for basic innovation, and the number of patents granted for an invention as proxy to measure applied innovation, respectively. There are two reasons for using two proxies as measure of innovative activities. First, scientific and technical journal articles are commonly considered as a reflection of innovative activities because the basic research itself demonstrates innovative output by an objective approach. Secondly, innovation is also can be seen as a translation of a new technique, product, or production process into a marketable technique, product, or production process (Becheikh et al., 2006). A patent aims at protecting an invention which is a product or a process that provides, in general, a new way of doing something, or offers a new technical solution to a problem (WIPO, 2013). Using patents is compatible to practical objective of applied innovation.
In some paper, R&D data is employed to measure innovative activities. However, R&D data is not proper in this paper because firstly, we focus on the output of innovative activities. R&D data is seen as an input of innovation. Secondly, innovation emerges in response to a specific problem or an innovator suddenly comes up with a clever new idea. In this case, measuring innovation by using R&D data cannot explain the phenomenon.
international patents. A patent is usually granted by a national pat ent office or by a regional office that a number of countries within the region admit it, such as the European Patent Office. WIPO IP Statistics Data Center (WIPO, 2013) helps to file a single regional patent application which has the same effect as a national application into the designated countries through the WIPO-administered Patent Cooperation Treaty (PCT). To be specific, in this study we measure applied research by employing the number of patents counted by resident applications per million populations by origin. As for basic innovation, the number of scientific and technical journal articles as a proxy for basic research is collected from the World Bank Data (2013).
3.2 Measures of Political Institutional Structures and Absorptive Capacity
By employing the dimension of political institutional structures proposed by Gates (2006), we classify 72 countries into three categories: (1) A Democratic Type: the executive authority is elected by regulated, open, and competitive elections; its executive auth ority works with a parliament or other political body; the participation is open and competitive. (2) An Autocratic Type: the executive recruitment is regulated, but non-opened; the executive authority is unconstrained; the participation is extremely restricted or noncompetitive participation. (3)An Inconsistent Type is defined as neither a democracy type nor an autocracy type.
Scores consist of six component measures that record key qualities of executive recruitment, constraints on executive authority, and political competition. It also records changes in the institutionalized qualities of governing authority. ‘The Polity IV Project’ (2013) evaluates political institutional structure across 150 countries from 1800 to 2012 by using the Polity Scores to divide these countries into three categories: "Autocracies" (-10 to -6), "Inconsistent" (-5 to +5), and "Democracies" (+6 to +10). For instance, countries graded lower as ‘-6’ such as China is identified as “Autocracies”. Countries graded higher than “+6” such as Japan is regarded as a “Democratic” type. Countries such as Russia are divided into an “Inconsistent" type since its grade varies from “-5” to “+5”. In order to conveniently interpretation of results, we rescale to Polity Score into a new range of “+1” to “+21”, that is, the Polity Score of “Autocracies” now starts from “1” to “5”. Correspondingly, “Inconsistent” goes from “6” to “16” and “Democracies” varies from “17” to “21”.
In order to observe a mutual effect of political institutional structures and absorptive capacity on innovative activities, Barro-Lee educational attainment dataset (Barro-Lee, 2013) provides us available data in terms of human capital to measure absorptive capacity. Barro-Lee dataset covers 146 countries in 5-year intervals from 1950 to 2010. We select percentage of complete tertiary schooling attained in populations because both of basic research and applied research require innovators with a rich specific or broad knowledge, which is accessible from universities or scientific institutions.
3.3 Control Variables
other main influential factors need to be controlled, such as the scale of country size, foreign direct investment, and the expenditures on technological research. First, the diverse country size is proxied by gross domestic production per capita (GDP per capita). National wealth relates to countries' demand conditions that, in turn, promote more innovative activities (Porter, 1990). The reason behind the statement is simply that high-income customers can afford new products, thus, a country with high purchasing power will increase the likelihood of innovative activities (Rogers, 2003). Also, the relationship between GDP per capita and innovative activities can be seen as a reflection an interpretation of policy, that is, whether the innovations are encouraged by the national policies. Second, many previous studies had confirmed that research and development expenditures (R&D expenditures) as an input of innovative activities. Thirdly, the influence of foreign direct investment (FDI) on the innovative outputs stays ambiguous. For instance, a study by Hu and Jefferson (2002) argues about a positive impact of foreign direct investment, whereas Stiebale and Reize (2011) found that foreign direct investment (FDI) through merger and acquisition has a negative effect on endogenous innovative activities.
All those control variables are collected from the World Bank database as well. Among these variables, the indicator of foreign direct investment (FDI), and research and development expenditures (R&D expenditures) are presented as percentage of national GD P.
3.4 Model and Method
(2) (3)
explanatory variables including GDP FDI, R&D, PIS (Political Institutional Structures) and ABC (Absorptive Capacity) are normally distributed. There is no need to transform a set of dependent variables into logarithm since two proxies of innovations are count data. The equations are estimated by fixed-effects Poisson Regression.
4. Empirical Results 4.1Descriptive data
In order to observe the impact of political institutional structures on innovative activities, we employ the panel dataset across 72 countries over 13 years (from 1997 to 2009). The investigated countries include all developed countries and major developing countries.
As shown in table 1, the mean of political institutional structures is 2.68, which locates in the range of autocratic regime. Political Institutional Structures (PIS) and innovative activities are positively correlated (the correlation to ‘scientific & technical journal articles’ and ‘patents by resident applications’ is respectively 0.11 and 0.06). Table 2 presents us that countries with a democratic regime ranks in the first place in terms of the number of scientific & technical journal article and the number of patents by resident applications. The observations imply that the performances of innovations are better in countries identified as democracy types relative to countries identified as inconsistent types or autocracy types. Thus, it is very likely that a more democratic regime contributes to generating more innovations.
and the correlation to the number of patents by resident applications is 0.24.
Among the control variables, we find that FDI net inflow investment is negatively correlated to innovative activities (the correlation to scientific and technical journal articles, and patents by resident applications is -0.15 and -0.31). This implies the impact of FDI on innovative activities is very likely to be negative. In addition, we also make Variance Inflation Factor test (VIF test) to check if there is multicollinearity issue among the explanatory variables. As shown in table 1, all value of VIF is lower than 5, thus there is no concern about the multicollinearity issue.
Table 1 Descriptive Statistics
Variable Obs. Mean Std. Dev. (1) (2) (3) (4) (5) (6) (7) VIF (1) Scientific & technical journal
articles
936 9133.68 25387.20 1
(2) Patents by resident applications
926 12434.98 49701.27 0.65 1
(3)GDP per capita in current US dollars (log)
936 8.68 1.47 0.30 0.21 1 2.68
(4)FDI net inflow investment(% of GDP) (log)
915 1.00 1.21 -0.15 -0.31 0.15 1 2.01
(5)R&D expenditure(% of GDP) (log)
909 -0.49 1.16 0.36 0.29 0.70 0.01 1 1.68
(% populations) (log) (7)Political institutional
structures
936 2.68 0.62 0.11 0.06 0.33 0.04 0.24 0.39 1 1.05
Table 2 Innovation Performances and Political Institutional Structures Political Institutional Structures (PIS) Scientific & technical journal articles
(Mean)
Patents by resident applications (Mean)
Democracy 11436.35 20958.57
Inconsistency 1326.523 1153.39
Autocracy 5863.03 100.72
4.2 Results
Furthermore, after taking the interaction term into account, we find that the coefficient of interaction term between ‘democracy’ and ‘percent of complete tertiary schooling in populations’ is significantly positive (0.1288, see table 3), whereas the impact of ‘autocracy’ and ‘percent of complete tertiary schooling in populations’ is significantly negative (-0.0382, see table 3). These observations demonstrate that under a democratic regime, more basic innovation can be generated in the country through improving its absorptive capacity relative to countries with no democracy. By contrast, an autocratic political regime will lower a country’s absorptive capacity, which eventually leads to less basic innovation. The results are consistent with the third hypothesis (H3), that is, political institution structures characterized as democracy strengthens the positive effect of absorptive capacity on basic innovation.
Table 3 Results of Estimation (Dependent Variable: Scientific & Technical Articles) Explanatory variables Dependent variable: scientific & technical articles
Model (1) Model (2) Model (3) Fix-effect Poisson regression Coefficient (Std. Dev.) Coefficient (Std. Dev.) Coefficient (Std. Dev.) (1) Constant 6.5538*** (0.0049) 6.7037*** (0.0047) 6.5665*** (0.0047) (2) GDP in current US dollars (log) 0.0923***
(0.0005)
0.0876*** (0.0004)
(0.0002) (0.0002) (0.0002) (4) R&D expenditure (% of GDP) (log) 0.9458***
(0.0007)
0.9446*** (0.0007)
0.9460*** (0.0007) (5) Complete tertiary schooling (% populations) (log) 0.7582***
(0.0008)
0.6018*** (0.0011)
0.7518*** (0.0008) (6) Political institutional structures(PIS) (log) 0.0041***
(0.0007) (7)Democracy*Complete tertiary schooling (%
populations) (log)
0.1288*** (0.0006) (8)Autocracy*Complete tertiary schooling(%
populations) (log) -0.0382*** (0.0007) LR chi2(5) 12500000 12500000 12500000 Prob. > chi2 0.0000 0.0000 0.0000 Pseudo R2 0.5299 0.5317 0.5300
***significance at 99% level; **significance at 95% level; *significance at 90% level.
Observations:888
implies that political institutional structure characterized as a democracy type have significantly negative impact on applied innovation. Thus, the observations do not support the second hypothesis (H2) which states a country has a democratic regime will contribute to its applied innovations.
On the other side, the coefficient of ‘percent complete tertiary schooling in populations’ is 1.0581 (see table 4), which indicates that the impact of absorptive capacity still stays significantly positive on applied innovations. However, after including the interaction term between political institutional structures and percent of complete tertiary schooling in populations, we find that under a politically democratic country, the positive impact of absorptive capacity on applied innovations is lower than countries with an autocratic or inconsistent regime. This is not inconsistent with the fourth hypothesis (H4).
Table 4 Results of Estimation (Dependent Variable: Patent by Resident Applications)
Explanatory variables Patent by resident applications
Model (1) Model (2) Model (3) Fixed-effect Poisson regression Coefficient (Std. Dev.) Coefficient (Std. Dev.) Coefficient (Std. Dev.) (1) Constant 10.9678*** (0.0043) 10.1389*** (0.0042) 10.1987*** (0.0041) (2) GDP in current US dollars (log) -0.3687***
(0.0004)
-0.3592*** (0.0004)
(3) FDI net inflow investment (% of GDP) (log) -0.5244*** (0.0004) -0.5203*** (0.0001) -0.5215*** (0.0001) (4) R&D expenditure (% of GDP) (log) 1.8673***
(0.0008)
1.8721*** (0.0008)
1.8677*** (0.0008) (5) Complete tertiary schooling (% populations) (log) 1.0581***
(0.0008)
1.0486*** (0.0010)
0.9893*** (0.0008) (6) Political institutional structures(PIS) (log) -0.3473***
(0.0005) (7)Democracy*Complete tertiary schooling (%
populations) (log)
-0.0974*** (0.0005) (8)Autocracy*Complete tertiary schooling(%
populations) (log) 0.2278*** (0.0006) LR chi2(5) 3390000 3360000 3370000 Prob. > chi2 0.0000 0.0000 0.0000 Pseudo R2 0.6784 0.6631 0.6649
***significance at 99% level; **significance at 95% level; *significance at 90% level.
Observations: 878
4.3 Robustness Checks
political pluralism, and the function of government. In order to conveniently interpret the results, we using a rotated scale varying from 1(not free) to 7 (free). Correspondingly, countries are classified into three types as well: (1) freedom types; (2) partly freedom types; (3) not freedom types, which are compatible to our initial dimension of political institutional structures. The results of estimation by using dataset from Freedom House Index also are consistent with H1 and H3, but do not support H2 and H4 (table 5 & 6, see Appendix). The results are in line with the previous estimations.
4.4 Discussion
There are three intuitive reasons behind these unpredictable findings. First, more attention that a democratic government pays is on welfare equality relative to intellectual property protection. As Persson and Tabellini (1994) stated, stronger patent protection probably leads to higher prices and less technology diffusion. A democratic country would grant less patents protection if people with less income get hurt by the higher prices. For example, in order to protect people who cannot afford the medicines for cancer and H.I.V. treatment, Indian government has refused to provide intellectual property protection for the medicine producer: Norvartis (Harris & Thomas, 2013).
willingness from a majority of people. Since most of people are outsiders of the innovators’ community, they would like to require for sharing the patents at lowest costs they are willing to pay. As a result, less benefit depresses the sustainable desire for innovators to apply for patents.
On the contrary, not alike the applied innovation, the incentive of basic innovation to create new knowledge is not directly from economic pursuit. Also, a success of basic research is a result of accumulation of knowledge and research time. Therefore, national or public financial support would be the best choice for basic research. As discussed in the literature review, under a democratic regime, the research institutions specializing on basic research by state sponsorship are “functionally quite well suited to maximize the long-run growth of the stock of scientific knowledge” (Dasgupta & David, 1994).
Thirdly, an autocratic country serves for the a few groups of political elites. The political institutions are tightly connected to a few enterprises or oligopolies. The less advanced countries in order to catch up with more advanced countries are prone to put R&D efforts on the research that can solve particle problems such as applied innovations. This gives a clue that why applied innovation is more favored in some countries such as China. State -run monopolies or oligopolies are closely linked to the political institutions and have strong influence on shaping policies relating to innovative activities.
chances for people to have an access to diversely educational resources or knowledge. With the help of advanced communication technology, the channels to gain knowledge can be different for people. Innovators do not necessarily get access to knowledge through tertiary schooling. Second, in the long run sustaining democratic political institutional structure requires the economic support. Second, democracy is long-term sustained only in rich countries (Barro, 1994). In both rich and democratic countries, people enjoy better welfare and freedom. There is no strong motivation for people to innovate due to low pressures from competition.
5. Conclusions
Understanding the driving forces of innovations is important for policy makers. An investigation of the relation among political institutional structures, absorptive capacity and innovations at country level is very less. Findings of this paper show that at a country level, the political institutional structure which characterized as a democratic type cont ributes to the basic innovation. Also, it helps the absorptive capacity of a country to enhance the innovative performances in basic research. By contrast, an autocratic political institution has a negative impact on basic innovative performances and further reduces an impact of absorptive capacity of a country on its basic innovation. On the other side, our findings reveal that there is no evidence that a country with more democratic political institutions will generate more applied innovations. Also, no evidence indicates that the democratic political institution helps the absorptive capacity of a country to lead to more applied innovations. We think there are two main reasons to explain. First, some patents granted are harmful to the poor people in a country. It contradicts a democratic government’s most concern about welfare inequality. As a result, the government might refuse to grant more patents. Second, an autocratic country is dominated by a few ‘political elites’ which are tightly connected to state-run monopoly or oligopolies. They are prone to gain ‘economic rents’ on research in a short time or put R&D efforts on research that could solve practical problems (i.e. applied innovations).
to the unavailability of data, since the evolution of political regime to a democracy takes place in different year or even takes a few year to achieve across country, therefore, it may require a longer time to capture the exact effect of political institutional structures on innovations.
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Figure 1 Global Trends in Governance, 1800-2012
Source: Polity IV Project, 2013
Figure 2 Numbers of Patents Granted by U.S. Patent and Trademark Office
Table 5 Robustness Checks (Dependent Variable: Scientific & Technical Articles)
Explanatory variables Dependent variable: scientific & technical articles Model (1) Model (2) Model (3)
Fix-effect Poisson regression Coefficient (Std. Dev.) Coefficient (Std. Dev.) Coefficient (Std. Dev.) (1) Constant 5.4680*** (0.0061) 6.8679*** (0.0005) 6.4901*** (0.0049) (2) GDP in current US dollars (log) 0.1919***
(0.0006)
0.0582*** (0.0005)
0.0996*** (0.0005) (3) FDI net inflow investment (% of GDP) (log) -0.2233***
(0.0002)
-0.2166*** (0.0002)
-0.2199*** (0.0002) (4) R&D expenditure (% of GDP) (log) 0.9536***
(0.0007)
0.9454*** (0.0007)
0.9464*** (0.0007) (5) Complete tertiary schooling (% populations) (log) 0.7750***
(0.0008)
0.7034*** (0.0009)
0.7570*** (0.0008) (6) Political institutional structures(PIS) (log) 0.3061***
(0.0009)
(7)Freedom*Complete tertiary schooling (% populations) (log) 0.0743*** (0.0006)
LR chi2(5) 12500000 12500000 12500000
Prob. > chi2 0.0000 0.0000 0.0000
Pseudo R2 0.5327 0.5304 0.5300
***significance at 99% level; **significance at 95% level; *significance at 90% level.
Table 6 Robustness Check (Dependent Variable: Patent by Resident Applications)
Explanatory variables Dependent variable: patent by resident applications Model (1) Model (2) Model (3)
Fix-effect Poisson regression Coefficient (Std. Dev.) Coefficient (Std. Dev.) Coefficient (Std. Dev.) (1) Constant 8.5757*** (0.0044) 10.0003*** (0.0050) 9.6394*** (0.0044) (2) GDP in current US dollars (log) 0.1070***
(0.0005)
-0.3309*** (0.0005)
-0.2927*** (0.0004) (3) FDI net inflow investment (% of GDP) (log) -0.5361***
(0.0001)
-0.5193*** (0.0001)
-0.5204*** (0.0001) (4) R&D expenditure (% of GDP) (log) 2.1523***
(0.0009)
1.8683*** (0.0008)
1.9435*** (0.0008) (5) Complete tertiary schooling (% populations) (log) 1.2373***
(0.0007)
0.9517*** (0.0003)
(0.0011)
(7)Freedom*Complete tertiary schooling (% populations) (log) -0.0522*** (0.0006)
(8)Not Freedom*Complete tertiary schooling(% populations) (log) 0.3212*** (0.0005)
LR chi2(5) 37700000 33900000 33900000
Prob. > chi2 0.0000 0.0000 0.0000
Pseudo R2 0.7462 0.6626 0.6687
Obs. 867 878 878
