Authors: Kyriaki Kafka, Pantelis Kostis

Title: Institutional Effects on Innovation and the Unusual Speed up Requirements of Structural Reforms

Abstract

The paper highlights how different countries present different institutional effects on innovation, using annual data for 152 countries for the period from 2007 to 2017. Using fixed-effects panel data estimation approach, as well as a robustness analysis, and dividing the countries into three groups based on their differences from the institution performance of the top-20 benchmark countries, an "S-shaped" relationship between institutions and innovation holds. The larger the group's distance from the benchmark countries, the more powerful the effects of institutions on innovation are. Furthermore, all groups of countries -either near or far from the benchmark countries- would reach the benchmark countries only in the long run and the very long run, given their average annual rate of change of innovation and institutions performance over the period under analysis. This leads to the conclusion that structural reforms are needed to speed up at an unprecedented pace to transform weak institutions that impede innovation, into institutions that will promote innovation and thus economic growth within reasonable time horizons. The analysis ends up presenting heat maps for each group of countries through which there are described the particular institutions that need to be structural reformed for each country.