Democracy’s limited impact on innovation: Panel data evidence from developing countries

Abstract

This study investigates the relationship between democracy and innovation across 61 developing countries from 2013 to 2020, utilizing data from Global Innovation Index. Employing the Freedom House Index and Polity2 indicators as proxies for democracy, research employs Ordinary Least Squares (OLS), Fixed Effects and SystemGMM techniques to analyze their impact on innovation. The findings of the study reveal no statistically significant relationships between democracy and innovation in developing nations within specified timeframe. Through empirical analysis, including various econometric approaches, it is observed that the level of democracy as measured by these indicators, does not appear to exert a discernable impact on the innovation landscape of these countries. These results carry important implications for public policy. While the promotion of democracy remains a crucial goal, especially for societal development and political stability, this study suggests that solely focusing on enhancing democratic institutions might not necessarily yield immediate direct improvements in the innovation capacities of developing nations. Policymakers and stakeholders involved in fostering innovation ecosystems in these regions may need to consider a more nuanced approach, encompassing factors beyond the scope of democratic governance to effectively spur innovation. Understanding the nuanced relationship between democracy and innovation in developing countries has significant implications for designing targeted policies aimed at enhancing innovation capacities, economic growth and overall societal development in these regions.