Skip to main content

Advertisement

SpringerLink
Log in

The Impact of Formal Institutions on Knowledge Economy

  • Published:
Journal of the Knowledge Economy Aims and scope Submit manuscript

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.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Subscribe and save

Springer+ Basic
$34.99 /Month
  • Get 10 units per month
  • Download Article/Chapter or eBook
  • 1 Unit = 1 Article or 1 Chapter
  • Cancel anytime
Subscribe now

Buy Now

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

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).

References

  • Abramovitz, M. (1956). Resource and output trends in the United States since 1870. American Economic Review, 46, 5–23.

    Google Scholar 

  • Agbor, J. A. (2011). How does colonial origin matter for economic performance in Sub-Saharan Africa. World Institute for Development Economics Research, Working Paper No. 2011/27.

  • Amavilah, V. H. (2009). Knowledge of African countries: production and value of doctoral dissertations. Applied Economics, 41(7–9), 977–989.

    Article  Google Scholar 

  • Andrés, A. R. (2006). The relationship between copyright software protection and piracy: evidence from Europe. European Journal of Law and Economics, 21, 29–51.

    Article  Google Scholar 

  • Andrés, A. R., & Asongu, A. S. (2013a). “Fighting piracy, which governance tools matter in Africa?” Journal of Business Ethics, http://link.springer.com/article/10.1007%2Fs10551-013-1620-7 (accessed: 26/05/2013).

  • Andrés, A. R., & Asongu, A. S. (2013b). The impact of software piracy on human development: Evidence from Africa. INESAD Working Paper.

  • Andrés, A. R., & Goel, R. K. (2012). Does software piracy affect economic growth? Evidence across countries. Journal of Policy Modeling, 34, 284–295.

    Article  Google Scholar 

  • Asongu, S. A. (2012a). Financial sector competition and knowledge economy: Evidence from SSA and MENA countries. Journal of the Knowledge Economy. Available from http://econpapers.repec.org/paper/pramprapa/43009.htm. Accessed 7 Dec 2012.

  • Asongu, S. A. (2012b). Reversed economics and inhumanity of development assistance in Africa. MPRA Paper No. 36542. http://econpapers.repec.org/paper/pramprapa/36542.htm. Accessed 7 Dec 2012.

  • Asongu, S. A. (2013). Globalization and human development: implications for Africa. International Journal of Development Issues. Available from http://econpapers.repec.org/paper/pramprapa/36541.htm. Accessed 7 Dec 2012.

  • Aubert, J. E. (2005). Knowledge economies: a global perspective. In A. Bonfour & L. Edvinsson (Eds.), Intellectual capital for communities. Oxford: Elsevier.

    Google Scholar 

  • Aubert, J. E., & Reiffers, J. L. (2003). Knowledge economies in the Middle East and North Africa: toward new development strategies. Washington, DC: The World Bank.

    Google Scholar 

  • Baumol, W. T. (1993). Entrepreneurship, management and the structure of payoff. Cambridge: MIT Press.

    Google Scholar 

  • Beck, T., Demirgüç-Kunt, A., & Levine, R. (2003). Law and finance: why does legal origin matter? Journal of Comparative Economics, 31, 653–675.

    Article  Google Scholar 

  • Bénassy-Quéré, A., Coupet, M., & Mayer, T. (2005). Institutional determinants of foreign direct investment. CEPII Working Paper 2005-05.

  • Bezmen, T. L., & Depken, C. A. (2004). The impact of software piracy on economic development. Working Paper. Francis Marion University.

  • Bils, M., & Klenow, P. J. (2000). Does schooling cause growth? American Economic Review, 90(5), 1160–1183.

    Article  Google Scholar 

  • Boudreau, J. W. (2002). Strategic knowledge measurement and management, “managing knowledge for sustained competitive advantage: designing strategies for effective human resource management. New York: Wiley

  • Chandra, D. S., & Yokoyama, K. (2011). “The role of good governance in the knowledge-based economic growth of East Asia – A study on Japan, Newly Industrialized Economies, Malaysia and China”, Graduate School of Economics, Kyushu University.

  • Chavula, H. K. (2010). The role of knowledge in economic growth. The African perspective. ICT, Science and Technology Division (ISTD),United Nations Economic Commission for Africa (UNECA).

  • CIA (2011). The World Factbook 2011. Central Intelligence Agency

  • Commission of the European Communities. (2004). European Innovation Scoreboard 2004: Comparative Analysis of Innovation Performance. Brussels: Enterprise & Industry Directorate General, Innovation Policy Development Unit.

    Google Scholar 

  • Cragg, J. G., & Donald, S. G. (1993). Testing identifiability and specification in instrumental variable models. Econometric Theory, 9(2), 222–240.

    Article  Google Scholar 

  • Dahlan, C. (2007). The challenge of the knowledge economy for Latin America. Globalization Competitiveness and Governability Journal, 1(1), 18–46.

    Google Scholar 

  • Diwan, I., & Rodrik, D. (1991). Patents, appropriate technology and North–South Trade. Journal of International Economics, 30, 27–48.

    Article  Google Scholar 

  • Drahos, P. (2002). Developing countries and international intellectual property standard-setting. The Journal of World Intellectual Property, 5(5), 765–789.

    Article  Google Scholar 

  • Ginarte, J. C., & Park, W. G. (1997). Determinants of patent rights: a cross-national study. Research Policy, pp. 283–301.

  • Globerman, S., & Shapiro, D. (2002). Global foreign direct investment flows: the role of governance infrastructure. World Development, 30(11), 1899–1919.

    Article  Google Scholar 

  • Goel, R. K., & Nelson, M. (2009). Determinants of software piracy: economics, institutions, and technology. The Journal of Technology Transfer, 34, 637–658.

    Article  Google Scholar 

  • Griliches, Z. (1990). Patent statistics as economic indicators: a survey. Journal of Economic Literature, 28(4), 1661–1707.

    Google Scholar 

  • Griliches, Z. (1992). The search for R&D spillovers. Scandinavian Journal of Economics, 94, 29–47.

    Article  Google Scholar 

  • Grossman, G. M., & Helpman, E. (1991). Innovation and growth in the global economy. Cambridge: MIT Press.

    Google Scholar 

  • Grossman, G. M., & Lai, E. C. (2004). International protection of intellectual property. American Economic Review, 94(5), 1635–1653.

    Article  Google Scholar 

  • Grupp, H., & Mogee, M. E. (2004). Indicators for national science and technology policy: how robust are composite indicators. Research Policy, 33, 1373–1384.

    Article  Google Scholar 

  • Hanushek, E. A., & Kimko, D. D. (2000). Schooling, labor-force quality, and the growth of nations. American Economic Review, 90(5), 1184–1208.

    Article  Google Scholar 

  • Hanushek, E. A., & Woessmann, L. (2008). The role of cognitive skills in economic development. Journal of Economic Literature, 46(3), 607–668.

    Article  Google Scholar 

  • Harms, P., & Ursprung, H. W. (2002). Do civil and political repression really boost foreign direct investment? Economic Inquiry, 40(4), 651–663.

    Article  Google Scholar 

  • Iqbal, Z. (1997). Islamic financial systems. Finance & Development, pp. 42–45.

  • Jolliffe, I. T. (2002). Principal Component Analysis (2nd ed.). New York: Springer.

    Google Scholar 

  • Kaiser, H. F. (1974). An index of factorial simplicity. Psychometrika, 39, 31–36.

    Article  Google Scholar 

  • Kaufmann, D., Kraay, A., & Mastruzzi, M. (2010). The worldwide governance indicators: Methodology and analytical Issues. World Bank Policy Research Working Paper no. 5430.

  • Kermally, S. (2002). Effective knowledge management: a best practice blueprint. Chichester: Wiley.

    Google Scholar 

  • Kim, L. (2004). The multifaceted evolution of Korean technological capabilities and its implications for contemporary policy. Oxford Development Studies, 32(3), 341–363.

    Article  Google Scholar 

  • La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. W. (1998). Law and finance. Journal of Political Economy, 106, 1113–1155.

    Article  Google Scholar 

  • La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (2008). The economic consequences of legal origin. Journal of Economic Literature, 46(2), 285–332.

    Article  Google Scholar 

  • Lambsdorff, J. G. (2003). How corruption affects persistent capital flows. Economics of Governance, 4(3), 229–243.

    Article  Google Scholar 

  • Lee, J., & Mansfield, E. (1996). Intellectual property protection and U.S. foreign direct investment. The Review of Economics and Statistics, 78(2), 181–186.

    Article  Google Scholar 

  • Lerner, J. (2009). The empirical impact of intellectual property rights on innovation: puzzles and clues. American Economic Review, 99(2), 343–348.

    Article  Google Scholar 

  • Lev, B. (2001). Intangibles: management, measurement, and reporting. Washington, DC: Brookings Institute.

    Google Scholar 

  • Lucas, R. E. (1988). On the mechanics of economic development. Journal of Monetary Economics, 22, 3–42.

    Article  Google Scholar 

  • Lucas, R. E. (1993). Making a miracle. Econometrica, 61(2), 251–272.

    Article  Google Scholar 

  • Lucas, R. E., & Moll, B. (2013). Knowledge growth and the allocation of time. NBER Working Paper no. 17495.

  • Mansfield, E. (1994). Intellectual property protection, foreign direct investment, and technology transfer. Washington DC: International Finance Corporation.

    Google Scholar 

  • Maskus, E. K. (2000). Intellectual property rights and economic development. Boulder: University of Colorado.

    Google Scholar 

  • Maskus, K. E., & Penubarti, M. (1995). How trade-related are intellectual property rights? Journal of International Economics, 39, 227–248.

    Article  Google Scholar 

  • Mauro, P. (1998). Corruption and the composition of government expenditure. Journal of Public Economics, 69(2), 263–279.

    Article  Google Scholar 

  • May, C. (2006). The denial of history: Reification, intellectual property rights and lessons of the past. Capital and Class, 30(1), 33–56.

    Article  Google Scholar 

  • May, C. (2007). The hypocrisy of forgetfulness: the contemporary significance of early innovations in intellectual property. Review of International Political Economy, 14(1), 1–25.

    Article  Google Scholar 

  • May, C., & Sell, S. (2001). Moments in law: contestation and settlement in the history of intellectual property. Review of International Political Economy, 8(3), 467–500.

    Article  Google Scholar 

  • Moser, P. (2012). Patent laws and innovation: evidence from economic history. NBER Working Paper Series no. 18631.

  • Mshomba, R. E. (2009). Africa and the World Trade Organization (pp. 100–142). New York: Cambridge University Press. Chapter 3.

    Book  Google Scholar 

  • Nelson, R. R., & Pack, H. (1999). The Asian miracle and modern growth theory. Economic Journal, 109, 416–436.

    Article  Google Scholar 

  • OECD. (2002). OECD Knowledge Management Project.

  • Peters, M. A. (2008). Education and the knowledge economy. In G. Hearn & D. Rooney (Eds.), Knowledge policy: challenges of the 21st century. Cheltenham: Edward Elgar.

    Google Scholar 

  • Romer, P. M. (1990). Endogenous growth and technical change. Journal of Political Economy, 98, 71–102.

    Article  Google Scholar 

  • Seyoum, B. (1996). The impact of intellectual property rights on foreign direct investment. Columbia Journal of World Business, 31(1), 50–59.

    Article  Google Scholar 

  • Solow, R. M. (1957). Technical change and the aggregate production function. Review of Economics and Statistics, 39, 214–231.

    Google Scholar 

  • Stern, N. (2003). “Investment climate: Lessons and change”, The Egyptian Centre for Economic Studies, Distinguished Lecture Series 19.

  • Stulz, R. M., & Williamson, R. (2003). Culture, openness and finance. Journal of Financial Economics, 70, 313–349.

    Article  Google Scholar 

  • Sveiby, K. E. (1997). New organizational wealth: managing & measuring knowledged-based assets. San Francisco: Berrett-Koehler Publishers.

    Google Scholar 

  • The World Bank. (2007). Building knowledge economies. Advanced strategies for development. Washington, DC: World Bank Institute Development Studies.

    Book  Google Scholar 

  • Todaro, M. P., & Smith, S. C. (2003). Economic Development, 8th ed. Addison Wesley.

  • UNDP. (2001). Human development report 2001: making new technologies work for human development. New York: United Nations Development Programme, Oxford University Press.

    Google Scholar 

  • UNDP. (2009). Arab Knowledge Report 2009. Towards Productive Intercommunication for Knowledge. United Nations Development Programme. Dubai: United Arab Emirates.

    Google Scholar 

  • Weber, A. S. (2011). The role of education in knowledge economies in developing countries. Procedia Social and Behavioral Sciences, 15, 2589–2594.

    Article  Google Scholar 

  • Yang, G., & Maskus, K. E. (2001). Intellectual property rights, licensing, and innovation in an endogenous product-cycle model. Journal of International Economics, 53, 169–187.

    Article  Google Scholar 

Download references

Acknowledgments

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

Author information

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

Authors
  1. Antonio Rodríguez Andrés
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Simplice A. Asongu
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Voxi Amavilah
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Antonio Rodríguez Andrés.

Appendices

Appendices

Table 8 Summary statistics and presentation of countries
Full size table
Table 9 Correlation analysis
Full size table
Table 10 Variable definitions
Full size table

Rights and permissions

Reprints and permissions

About this article

Cite this article

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

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s13132-013-0174-3

Keywords

JEL Classification

Search

Navigation