Knowledge stocks, government R&D, institutional factors and innovation: evidence from biotechnology patent data

ABSTRACT

Employing panel data from 36 countries, this study examines whether diverse factors such as existing knowledge stock, research and development (R&D) financed by government, R&D performed by government, education and economic freedom have influenced biotechnology innovation. The results indicate that existing knowledge stock is a driver of biotechnology innovation, reflecting potential positive path dependencies. This study also suggests the possibility that as the share of government R&D financed in total R&D expenditure increased, the performance of biotechnology innovation increased. However, in developed countries, an excessive rate of government R&D performed in total R&D expenditure could have negative innovation effects while higher education and economic freedom had a positive impact on the biotechnology innovation. We propose that, in developed countries, the government needs to play a role as a market facilitator for the promotion of biotechnology innovation. Developing countries need a stronger government role for the promotion of biotechnology innovation in terms of R&D investment.

KEYWORDS:

• Neo-Schumpeterian innovation
• biotechnology
• knowledge stock
• government R&D
• economic freedom

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 According to the WIPO, biotechnology generally concerns the application of cellular and molecular biology to make or modify products or processes, which includes scientific and industrial disciplines focused on understanding and manipulating living or biologically active material at the molecular level (WIPO, 2020). WIPO classifies biotechnology patent as IPC code such as C07G, C07K, C12M, C12N, C12P, C12Q, C12R and C12S (WIPO, 2016).

2 Alternatively, the Global Governance Indicators can be used to measure the quality of governance to set policy or to conduct analyses (Thomas 2010). The Global Governance Indicators rank countries on six aspects such as voice and accountability, political stability and lack of violence, government effectiveness, regulatory quality, rule of law and control of corruption. However, we use the economic freedom index because the economic freedom index contains a measure of ‘open markets’ as one of the components. Investment freedom, financial freedom and trade freedom are components for measuring open markets. These components are important as institutional environments to explain biotechnology innovation, which needs large investment funds. Therefore, this study opted for economic freedom index as an institutional factor for the explanation of biotechnology innovation.