The Impact of Institutions on Innovation

Abstract

This paper studies the impact of institutional reforms on innovation. We use the timing and geography of the French occupation of dierent regions of Germany after the French Revolution of 1789 as an exogenous shock to the institutions of those regions. Combining novel countylevel data on Imperial Germany with data on patents per capita, we show that counties whose institutions are more inclusive as a result of the French occupation become more innovative. The institutional reforms that are associated with comparing a county with no occupation to a county with the longest occupation, result in a 129% increase in the number of patents per capita. This result is robust to alternative explanations, such as reverse causality, human capital and nancial development. Our ndings point to institutions as a rst order determinant of innovation and highlight the role of innovation as a key mechanism through which institutions may lead to economic growth.

Creativity Over Time and Space

“…Finally, two related papers study the effects of local institutions on innovation, using historical data on Germany. Donges et al (2016) show that counties whose institutions are more inclusive as a consequence of the French occupation after 1789 turn out to be more innovative (in terms of patents per capita). Dittmar and Meisenzahl (2016) show that cities enacting in the XVI century legal reforms that established mass public education and increased state capacity began differentially producing and attracting individuals with upper tail human capital.…”

Discrimination against Foreigners: The Wuerttemberg Patent Law in Administrative Practice

“…The authors conclude that the longer a German state was under French rule, the more firmly the new inclusive institutions became anchored in German society and the higher, therefore, was subsequent economic growth. Based on these findings, Donges, Meier, and Silva (2018) try to identify the channel through which the institutional reform influenced economic development the most. Using data about the distribution of valuable patents across German regions after 1877 (Streb, Baten, and Yin 2006), they observe that German counties with the longest period of French occupation had more than twice as many valuable patents per capita than unoccupied German counties that stuck to their traditional institutions for some additional time.…”

“…Using data about the distribution of valuable patents across German regions after 1877 (Streb, Baten, and Yin 2006), they observe that German counties with the longest period of French occupation had more than twice as many valuable patents per capita than unoccupied German counties that stuck to their traditional institutions for some additional time. That is why Donges, Meier, and Silva (2018) claim that inclusive institutions are a first-order determinant of innovation and, therefore, growth.…”

Entrepreneurial Behavior, Institutional Trust and National Innovation: A Macro-Level Empirical Study

“…Therefore, institutional framework in developing countries needs to be improved to guarantee the success of R&D investment. Donges, Meier and Silva (2019) highlight that institutions affect economic growth through innovation. This study is carried out in an empirical setting of timing and geography of French occupation after the French Revolution in Germany.…”