INSTITUTIONAL QUALITY AND INNOVATION AT FIRM LEVEL: AN EMPIRICAL EVIDENCE FROM ASIAN COUNTRIES

Abstract

This study investigated that how institutional quality affects firm level innovation in Asian countries. Strong institutions, like the rule of law, property rights protection, and efficient government, play a key role in creating an environment that supports innovation. The research analyzed how different factors, such as political instability, corruption, crime, R&D spending, workforce training, export exposure, and firm characteristics, influence product innovation using a binary Probit model. Data included firm-level variables and indicators of institutional quality across Asian countries. It was gathered from the World Bank Enterprise Survey (WBES) for this study involving 12 countries. The findings showed that political instability has a positive and significant effect on the chances of firms introducing new products or services. R&D spending showed the strongest positive relationship with product innovation, emphasizing the importance of research and development. On the other hand, crime and corruption hurt product innovation, reducing the likelihood of developing new products or services. The education level of the workforce had a slightly negative effect on patent applications. Interestingly, skill development through workforce training positively impacts product innovation, confirming that human capital is important for driving innovation. The study highlighted the need to improve institutional quality, promote R&D investment, boost workforce skills, and encourage international exposure to stimulate firm innovation in Asian countries. These findings provide useful insights for policymakers looking to create a supportive environment for innovation.