State effectiveness, property rights and entrepreneurial behaviour as determinants of National Innovation

Abstract

Abstract This article examines the role of entrepreneurial behaviour, property rights and state effectiveness as determinants of national innovation. Entrepreneurial behaviour reflects not only risk‐bearing and risk‐sharing attitudes but also the capacity to undertake innovation activities. Besides, institutions also play an important role in formalising entrepreneurial behaviour that is crucial for a country's innovation. A comparison is made among three groups of countries—that is, factor‐driven, efficiency‐driven and innovation‐driven economies. Panel‐data econometric techniques are applied to undertake empirical analysis, using macro‐level data covering a time period of 7 years (2010–2016). It is observed that entrepreneurial attitudes and entrepreneurial activities play an important role in determining innovation but the impact varies with the level of economic development. A U‐shaped relationship is observed between innovation and entrepreneurial activities. Innovation‐driven economies have strong property rights and effective policy implementation that help build the confidence of prospective entrepreneurs who are attracted by perceived opportunities. Therefore, perceived opportunities have a significant impact only in innovation‐driven economies. Moreover, innovation is highly suppressed in fragile countries, that is, factor‐driven economies that face serious market distortions and inefficiencies caused by weak property rights and state ineffectiveness. However, no significant relationship is found in efficiency‐driven economies.