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The Impact of Formal Institutions on Knowledge Economy

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Abstract

Using Kauffman, Kraay, and Mastruzzi governance indicators, this article analyzes the impact of formal institutions on the knowledge economy by assessing how the enforcement of Intellectual Property Rights (IPRs) through good governance mechanisms affects the knowledge economy. The article also employs the World Bank’s four components of the knowledge economy index characteristic of its knowledge for development framework. We estimate panel data models for 22 Middle Eastern and North African and Sub-Saharan African countries over the period 1996–2010. The results show that for this group of countries the enforcement of IPR laws (treaties), although necessary, is not a sufficient condition for a knowledge economy. The results also suggest that other factors are more likely to determine the knowledge economies of these nations. Overall, these findings have important implications for both policy and further research.

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Notes

  1. Though there is no doubt that good governance helps to promote the KE, we admit that the second statement may be debatable because FDI on its own may not be a sufficient promoter of KE.

  2. It should be noted that, there is also a wealth of literature that criticizes the use of IPRs through international treaties as forbearers of KE (Drahos 2002; May and Sell 2001; May 2006, 2007).

  3. China’s success story in attracting FDI is largely attributed to a spectacular growth track record, the relative better executive power, political stability, good infrastructure, abundant educated labor force, and a large domestic market (Chandra and Yokoyama 2011, p. 46).

  4. There is also literature critical of the role of IPRs (Moser 2012).

  5. An OIR test is only applicable in the presence of over-identification, that is, the instruments must be higher than the endogenous explaining variables by at least one degree of freedom. In the cases of exact identification (instruments equal to endogenous explaining variables) and under identifications (instruments less than endogenous explaining variables) an OIR test is by definition impossible.

  6. It should also be noted that in developing economies, local norms and practices that matter are reflected by the formal institutional channels.

  7. The 22 MENA and SSA countries are listed in Table 8 (Presentation of countries) in Appendix. Good governance indicators for these countries are only available as from 1996 (see World Bank’s World Development Indicators).

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Acknowledgments

The authors are highly indebted to the editor and referees for their very useful comments.

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Authors and Affiliations

  1. Faculty of Business and Economics, Department of Economics, Eastern Mediterranean University, Famagusta 98000, Turkish Republic of North Cyprus, Via Mersin 10, Turkey

    Antonio Rodríguez Andrés

  2. African Governance and Development Institute, B.P. 18 SOA/1365, Yaoundé, Cameroon

    Simplice A. Asongu

  3. Glendale College, Economics, PO Box 38061, Phoenix, AZ, 85069-8061, USA

    Voxi Amavilah

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  1. Antonio Rodríguez Andrés
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  2. Simplice A. Asongu
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  3. Voxi Amavilah
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Correspondence to Antonio Rodríguez Andrés.

Appendices

Appendices

Table 8 Summary statistics and presentation of countries
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Table 9 Correlation analysis
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Table 10 Variable definitions
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Andrés, A.R., Asongu, S.A. & Amavilah, V. The Impact of Formal Institutions on Knowledge Economy. J Knowl Econ 6, 1034–1062 (2015). https://doi.org/10.1007/s13132-013-0174-3

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