The Impact of Institutions on Innovation

109 Pages Posted: 14 Jul 2021

See all articles by Alexander Donges

Alexander Donges

University of Mannheim

Jean-Marie Meier

University of Texas at Dallas

Rui Silva

NOVA School of Business and Economics; Centre for Economic Policy Research (CEPR)

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Date Written: June 2021


We study the impact of inclusive institutions on innovation using novel, hand-collected, county-level data for Imperial Germany. We use the timing and geography of the French occupation of different German regions after the French Revolution of 1789 as an instrument for institutional quality. We find that the number of patents per capita in counties with the longest occupation was more than double that in unoccupied counties. Among the institutional changes brought by the French, the introduction of the Code civil, ensuring equality before the law, and the promotion of commercial freedom through the abolition of guilds and trade licenses had a stronger effect on innovation than a reform that increased labor market mobility and an agricultural reform that broke up the power of rural oligarchs. We also document that the effect of institutions on innovation was particularly pronounced for high-tech innovation and that the increase in patenting activity due to better institutions translated into higher economic growth. Our findings highlight inclusive institutions as a first order determinant of innovation.

JEL Classification: K40, N13, N43, O31, O43

Suggested Citation

Donges, Alexander and Meier, Jean-Marie and Silva, Rui, The Impact of Institutions on Innovation (June 2021). Available at SSRN:

Alexander Donges (Contact Author)

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Mannheim, 68131

Jean-Marie Meier

University of Texas at Dallas ( email )

Jindal School of Management
800 W. Campbell Road
Richardson, TX 75080
United States


Rui Silva

NOVA School of Business and Economics ( email )

Rua da Holanda, no. 1
Carcavelos, 2775-405

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

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