What Affects Innovation More: Policy or Policy Uncertainty?

Published on: 2015-12-10

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Abstract / Seminar Summary

The important role of technological innovation in promoting a nation’s long-term economic growth and competitive advantage has been established since the seminal work of Solow (1957). Although a growing literature has examined various empirical links between innovation and firm- or market-specific characteristics, rigorous empirical studies that explore how politics affects technological innovation are sparse. Politics is important to innovation because politicians make policy and regulatory decisions that frequently alter the economic environment in which innovative firms operate, which ultimately affects a nation’s innovation growth.

Motivated by a theoretical model, the present research empirically examines for 43 countries whether it is policy or policy uncertainty that affects technological innovation more. The paper finds innovation, measured by growth in patent counts, citations, and originality, is not, on average, affected by which policy is in place. Innovation, however, drops significantly during times of policy uncertainty measured by national elections. Political compromise, the paper concludes, is a plus for encouraging innovation.

About the Speaker

Professor Bhattacharya is Professor at the HKUST Department of Finance. His research focuses on the dark side of finance. He has published in all the top-tier finance journals, and many of the top-tier accounting and economics journals. His research has been featured more than a hundred times in the U.S. media and in the foreign media (including five feature stories in the Economist.) He has been invited to present his research in more than 170 institutions in 24 countries in 5 continents. He teaches in a different country every summer. He has taught at top universities in Argentina, Brazil, China, France, Germany, Holland, India, Indonesia, Italy, Japan, Lithuania, Mexico, New Zealand, Portugal, Singapore, Slovenia, South Korea, Russia, Taiwan and Turkey. In the U.S., he has been a visiting faculty at Chicago, Duke and MIT. His goal is to spread the gospel of honest finance to every corner of the globe. Prof. Bhattacharya holds a Ph.D. in finance from Columbia University.

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