Abstract
The specific question posed in this study is how does corruption faced by a firm affect their innovation activity? In order to answer this question I typify innovation activities of firms in a manner that is relevant in the context of corruption in developing countries, based on the argument that firms are affected by corruption through their interactions with the institutional framework of their environment. I predict that that corruption has a direct negative effect on innovation activities that require the obtainment and enforcement of patent protection, namely product and process innovation, due to these types of innovation requiring exchanges with institutional actors. Institutionally-independent innovation, which include marketing-based innovations that do not require patent rights are argued to have either a complimentary or substitutive relationship with institutionally-dependent innovation depending on the patent-intensiveness of the industry if the firm. Empirical tests of hypothesis are conducted using survey data from over 7000 Indian and African firms.
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