Institutional varieties, governance quality, and firm‐level innovation in emerging economies: Case of India

Abstract

This study examines how institutional varieties at the subnational (state) level influence firm‐level innovation in an emerging economy—India. Knowledge of how institutional varieties influence firm‐level innovation is derived principally from country‐level studies involving multiple developed countries. Research on emerging economies is sparse and tends to follow country‐level approaches involving multiple countries. Research involving a single emerging economy where there are substantial institutional varieties between regions is thin. The institutional varieties of some emerging countries are so striking that they can be viewed as several countries within a country, for example, India, China. This study contributes to the innovation literature on the role of institutional varieties on firm‐level innovation by focusing on a different level of analysis—a single, emerging economy with substantial institutional varieties across the different states of India. Innovation in emerging economies is a topic of increasing academic interest. A multilevel study involving regional‐ and firm‐level factors is employed. Firm‐level data are from the World Bank Enterprise Survey and regional‐level data are from statistical agencies in India. The results confirm that institutional varieties have major impacts on firm‐level innovation. The research, policy, and managerial implications are discussed.