Institutional determinants of R&D investment: Evidence from emerging markets

Institutional environment of a country plays an important role for innovation activities. Our results confirm that external environment of emerging countries influence the R&D investment. Using Generalized Method of Moments (GMM) estimation of panel data for 664 firms from selected 20 emerging markets during the period of 2006–2013, we find that institutional quality has significant impact on R&D investment. The results show that government effectiveness, rule of law, and regularity quality have positive impact, while corruption and political instability have negative impact on R&D investment in the emerging markets. We also performed elasticity test to compare among the institutional factors. The results show that among the institutional determinants, corruption of a particular emerging country is found to be most important in influencing R&D investment followed by regularity quality, government effectiveness, rule of law, and political instability. These results would be helpful to investors and policy makers to assess the requirements of sustainable development. The results of this study clearly demonstrate that to attract more R&D investment as a source of sustainable development, government should ensure a sound and stable institutional environment along with strengthening other firm level factors as institutional factors are more important to explain the variation over the time and also cost effective in terms of implementation.