Does Democracy Foster the Creation of Innovation? Disentangling the Interplay between Institutions and Political Regimes
Abstract: Technological achievements in the form of innovations are important driving forces for an economy. Political leaders therefore have a direct interest in promoting innovations. However, the interrelation between different political regime types and their influence on the creation of innovations is unclear in current research. By establishing a micro model based on an economic agent's decision between innovating and imitating technologies, and a political ruler setting intellectual property rights protection in accordance with her preferred policy, we find that inducing innovation through strong intellectual property rights goes hand in hand with establishing a favorable environment for the success of new technologies. This finding is supported by our empirical estimation, which shows that there is a clear positive impact of intellectual property rights on innovations. Additionally the democratic regime type is shown to have a positive influence on the strength of intellectual property rights. We conclude that the employed innovation strategy matters more than the regime type of the nation.
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