Institutions and innovations as sources of productivity growth : cross-country evidence

The investigation of the determinants of economic growth plays an important role for our understanding of the sources of cross-country income differences. This paper analyzes the effects of institutions and innovations on country productivity growth. The empirical evidence shows that institutions and innovations matter, in particular for human capital efficiency. Without controlling for endogeneity the effect of innovations turns significant only when aggregate institutions indexes or human capital efficiency are included. When controlling for endogeneity innovations become insignificant, but more institutional variables become relevant. Under robustness checks innovations indeed have a direct effect on country productivity growth moderated by a country's human capital efficiency. Allowing for three alternative institutional variables does not change the effects of the institutional variables of interest.