The impact of governance and infrastructure on innovation

This article uses a recent wave of the World Bank Enterprise Survey to analyse four aspects of innovation: (i) the introduction of a new product or service, (ii) product/service upgrading, (iii) RD and (iv) the licensing of technology. Good governance affects innovation on several dimensions. Bureaucracy, in the form of permits posing a problem for firms, can deter firms from innovating themselves, moving them towards the licensing of foreign technology, and corruption deters RD. However, there is evidence of a negative impact of good and effective courts on innovation and RD. Although perhaps slightly surprising, this is not inconsistent with much of the literature. In addition regional infrastructure, which is to varying degrees also determined by government policy, is significant in determining innovation. This includes transport, IT and financial infrastructure.