Working Paper: CEPR ID: DP16212
Authors: Alexander Donges; JeanMarie Meier; Rui Silva
Abstract: We study the impact of inclusive institutions on innovation using novel, hand-collected, county-level data for Imperial Germany. We use the timing and geography of the French occupation of different German regions after the French Revolution of 1789 as an instrument for institutional quality. We find that the number of patents per capita in counties with the longest occupation was more than double that in unoccupied counties. Among the institutional changes brought by the French, the introduction of the Code civil, ensuring equality before the law, and the promotion of commercial freedom through the abolition of guilds and trade licenses had a stronger effect on innovation than a reform that increased labor market mobility and an agricultural reform that broke up the power of rural oligarchs. We also document that the effect of institutions on innovation was particularly pronounced for high-tech innovation and that the increase in patenting activity due to better institutions translated into higher economic growth. Our findings highlight inclusive institutions as a first order determinant of innovation.
Keywords: innovation; patents; institutions; economic growth
JEL Codes: O31; O43; N13; N43; K40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| French occupation (N93) | inclusive institutions (D02) |
| inclusive institutions (D02) | innovation (patenting activity) (O31) |
| French occupation (N93) | patents per capita (O34) |
| inclusive institutions (D02) | economic growth (O49) |
| Code Civil and abolition of guilds (K29) | innovation (patenting activity) (O31) |
| inclusive institutions (D02) | high-tech sectors innovation (O39) |
| inclusive institutions (D02) | variation in economic growth (O49) |