National innovation rates: the evidence for/against domestic institutions

Why are some countries more technologically innovative than others? The dominant explanation amongst political-economists is that domestic institutions determine national innovation rates. However, after decades of research, there is still no agreement on precisely how this happens, exactly which institutions matter, and little aggregate evidence has been produced to support any particular hypothesis. This paper will review the equivocating evidence for domestic institutions explanations of national innovation rates. Its survey will show that, although a specific domestic institution or policy might appear to explain a particular instance of innovation, they generally fail to explain national innovation rates across time and space. Instead, the empirical evidence suggests that certain kinds of international relationships (e.g. capital goods imports, foreign direct investment, educational exchanges) affect national innovation rates in the aggregate, and that these relationships are not themselves determined by domestic institutions. In other words, explaining national innovation rates may not be so much a domestic institutions story as it is an international story.