Innovation performance and institutions: evidence from Latin America and the Caribbean countries

Abstract

It is well known that knowledge activities, such as Research and Development (R&D) investments, is a firm’ indistinguishable action to sustain cutting edge innovative activities, generate wealth and accelerate economic growth. Now more than ever, there is a growing awareness about fostering this valuable activity in developing economies. Nonetheless, and by their very nature, R&D is inherently risky. In particular, investing in R&D to increase innovation performance could be even more challenging for developing economies due to their institutional underdevelopment. Drawing from institutional economic theory, this thesis seeks to understand the effective condition of R&D investments and innovation performance in Latin America and Caribbean (LAC) countries and the effects of formal and informal institutions on the firms’ and country’s innovation performance. Inspired by a recent subject, this thesis adds significant contributions to the innovation and institutional literature. Considering a systematic literature review on state-of-the-art, Article 1 investigate and shed light about innovation and R&D across manufacturing industries in Latin America and the Caribbean countries. This systematic review enriches the innovation literature and adds new insights to further research. Moreover, the findings offer invaluable implications for policymakers and practitioners to foster innovative activities in Latin America. Article 2 considers a specific legal institutional mechanism – the Intellectual Property Rights (IPRs) protection. With the main objective to explore how the role of country intellectual property rights protection affects innovation performance, Article 2 adds to the literature a large methodological contribution and offers plenty of implications to policymakers concerning increasing the IPRs protection in developing economies. The findings revealed that both domestic and foreign innovation base activity positively increases innovation performance in a given country, albeit differences in domestic and foreign innovation patterns appear in the presence of strong IPRs protection. Article 3 explore how the firm’s R&D performance is moderated by the relationship between R&D investments and the role of country institutions in Latin America investigates how the firm’s R&D performance is moderated by the relationship between R&D investments and the role of country institutions in Latin America. This specific study enriches the literature with a new dataset of Latin American firms from Brazil, Chile, Mexico and Peru. Moreover, it is proposed a new methodological approach to increase the robustness of adopting several institutional indicators. The results support the argument that “institutions matter” for the long-term R&D investments. Overall, the results from this thesis revealed that LAC countries must urgently develop their institutions to stimulate long-term innovative activities. Regarding the IPRs, policymakers should develop an IPRs policy supporting a more “moderate” protection to stimulate the country’s innovation performance by domestic and foreign innovation base activity. Ultimately, the findings suggest that policymakers should wake up their commitment to improving institutions. Therefore, this is fundamentally necessary for the managers to safely double down the sheer amount of R&D aiming the long-term.