Abstract We explore the effect of political uncertainty on innovation. In particular, we examine the differential effects of two sources of uncertainty – leaders’ education levels and political regimes (i.e., presidential vs. parliamentary) – on patent applications. We posit that firms react to political uncertainty caused by the unexpected departure of a national leader by investing in patents as growth options. The empirical design analyzes a panel with information from over 62 million patent applications at the aggregated applicant level. Results show that leaders’ unexpected departures cause, on average, increases of approximately 9% in the aggregate growth of patent applications. We also find that the leader’s level of education and the country’s political regime system have significant effects on the relationship between political uncertainty and innovation. The difference between leaders with high and low levels of education accounts for 21% of the change in the growth of patent applications. Further, the effect of political uncertainty on innovation is amplified in presidential systems, which grant leaders more power and make electoral transitions less predictable. The differences between presidential and parliamentary systems account for approximately 16% of the change in the growth of patent applications. As a robustness check, we utilized a subsample of more than 170,000 firms with local and foreign patent applications, as well as a panel of over 5700 government non-profits, universities, and hospitals with local patent applications. Consistent with our theory, the former react to political uncertainty by investing in patents, while the latter remain unaffected. We contribute by showing the theoretical mechanisms linking leader and regime characteristics with patent applications.
Political uncertainty and innovation: The relative effects of national leaders’ education levels and regime systems on firm-level patent applications
J. Pertuzé,T. Reyes,R. Vassolo,Nicolás Olivares
Published 2019 in Research Policy
ABSTRACT
PUBLICATION RECORD
- Publication year
2019
- Venue
Research Policy
- Publication date
2019-11-01
- Fields of study
Economics, Political Science
- Identifiers
- External record
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Semantic Scholar
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CLAIMS
CONCEPTS
- leaders' education levels
The educational attainment of national leaders, compared between higher-education and lower-education cases.
Aliases: leader education, national leaders' education
- parliamentary systems
Political regimes in which executive power is more constrained and leadership transitions are typically more predictable.
Aliases: parliamentary regime
- patent applications
Applications for patent protection used as the paper's measure of innovative activity and growth options.
Aliases: patenting, patent filings
- political regimes
The country's institutional system for executive power and electoral transition, especially whether it is presidential or parliamentary.
Aliases: regime systems
- political uncertainty
Unpredictability in national leadership and institutional conditions that may alter firms' expectations about the future.
Aliases: policy uncertainty
- presidential systems
Political regimes in which the executive holds substantial power and leadership transitions are less predictable.
Aliases: presidential regime
- unexpected departure of a national leader
An unplanned exit of a country's leader used as the event generating political uncertainty in the analysis.
Aliases: leader departure, national leader departure
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