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Abstract
By using GMM estimators for unbalanced panel data, we examine the effects of institutional quality, trade openness, and FDI flows on innovation in 84 countries for the period between 1996 and 2014. Our results show that, although institutional quality appears as a vital driver for patent applications, FDI flows and trade openness have different influences. Precisely, higher inward FDI flows have a positive effect on the number of patents whereas trade openness might have a negative one. We afterwards discuss the influence of institutional quality on these two effects by showing that the effects of economic openness are enhanced by the improvement of institutional quality. These results are important for policy makers in setting-up the short-run and long-run policies to sustain economic growth.
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