Financial Crisis as an Innovation Determinant

Abstract: This paper examines the effect of the 90s financial crisis in Sweden on patent quantity and attempts to determine the potential mediating role that institutions of higher education may play. The empirical design consists of adifference-in-differences model which relies on cross-municipality variation in crisis exposure, which is defined asthe percentage of employment loss during the crisis years, 1991-1993. The results suggest that the crisis did not significantly affect the overall number of patents issued; however, Innovation significantly increased in municipalities with an above-median college attendance rate. Additionally, I find that municipalities with access to institutions of higher education were also positively affected by the crisis in terms of patent quantity. Both these results indicate that government policy to expand access to higher education institutions may in fact facilitate innovation activity during times of financial crisis.