What Affects Innovation More: Policy or Policy Uncertainty?

58 Pages Posted: 18 Dec 2013 Last revised: 13 Aug 2017

See all articles by Utpal Bhattacharya

Utpal Bhattacharya

HKUST Business School

Po-Hsuan Hsu

National Tsing Hua University - Department of Quantitative Finance

Xuan Tian

Tsinghua University - PBC School of Finance

Yan Xu

HKU, Faculty of Business and Economics

Date Written: February 3, 2017

Abstract

Motivated by a theoretical model, we examine for 43 countries whether it is policy or policy uncertainty that affects technological innovation more. Innovation activities, measured by patent based proxies, are not, on average, affected by which policy is in place. Innovation activities however, drop significantly during times of policy uncertainty measured by national elections. This is particularly true for more innovation-intensive industries. We use close presidential elections and ethnic fractionalization to address endogeneity concerns. We uncover the mechanism underlying the main result by showing that the number of patenting inventors decreases with policy uncertainty. Political compromise, we conclude, encourages innovation.

Keywords: Innovation, Policy uncertainty, Policy, Political party

JEL Classification: G18, G38, O31, D80, E66

Suggested Citation

Bhattacharya, Utpal and Hsu, Po-Hsuan and Tian, Xuan and Xu, Yan, What Affects Innovation More: Policy or Policy Uncertainty? (February 3, 2017). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2368587 or http://dx.doi.org/10.2139/ssrn.2368587

Utpal Bhattacharya (Contact Author)

HKUST Business School ( email )

Clear Water Bay
Kowloon
Hong Kong

Po-Hsuan Hsu

National Tsing Hua University - Department of Quantitative Finance ( email )

101, Section 2, Kuang-Fu Road
Hsinchu, Taiwan 300
China

Xuan Tian

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing 100083
China
+86-10-62794103 (Phone)

HOME PAGE: http://xuantian.info/

Yan Xu

HKU, Faculty of Business and Economics ( email )

Pok Fu Lam Road
Hong Kong
Hong Kong

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
1,411
Abstract Views
19,327
rank
16,121
PlumX Metrics