Language and Innovation : The Real Effect of Informal Institutions

Strong future-time reference (FTR) languages require speakers to grammatically mark future events, while weak-FTR languages do not. Using data from 33 countries, we find that firms in countries where strong-FTR languages are spoken are less likely to engage in innovative activities than those in countries where weak-FTR languages are spoken. Further evidence shows that strong-FTR languages affect inventors' perceptions and beliefs around the future rewards from innovation. Moreover, due to interactions between people speaking different languages, globalization attenuates the negative impact of language FTR on innovation. To further support these findings, we provide evidence from a single country with a multilingual environment to control for omitted country-level characteristics. Our study emphasizes the impact of language on corporate innovation and sheds light on the importance of informal institutions on economic outcomes