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This paper contributes to the literature on institutions and economic growth by conducting an empirical examination on the links between innovation and institutions. Using cross-country data and the instrumental variable method, this paper finds that institutional arrangements explain much of the variation on patent production across countries. The authors find evidence that control of corruption, market-friendly policies, protection of property rights and a more effective judiciary system boost an economy's rate of innovation. Most of the previous literature on institutional and economic performance finds a positive association between institutions and levels of income and between institutions and the transitional growth rates of per capita income.
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