The effect of institutions on R&D investment: the case of four mediterranean euro area states

Abstract

PurposeThis study investigates the impact of institutional factors on firms investing in R&D.Design/methodology/approachThe study uses data from the World Bank's Enterprise Surveys for the Republic of Cyprus, Greece, Italy and Portugal. A model with institutional factors as explanatory variables and firm performance factors as control variables is estimated with weighted least squares heteroscedasticity corrected regression. The reverse causality problem is addressed by using a two-stage least squares regression approach.FindingsThe findings indicate that institutional quality has a significant influence on firms' R&D expenditure. The results have several implications in relation to findings of previous research.Research limitations/implicationsThe inclusion of more countries that were affected by the European economic crisis will probably give more insights about the effect of institutional factors on R&D.Practical implicationsPolicy makers have to address short-comings in institutional quality, particularly in terms of the labor regulation burden. Policy makers should prioritize anti-corruption measures to foster an environment that would attract more R&D in the Republic of Cyprus and Greece.Originality/valueThis study contributes to the growing body of literature investigating the impact of institutional factors on R&D. It focuses on four developed European countries that bore the brunt of the European economic crisis and have to implement their recovery and resilience plans successfully, in order to recover from the effects of the COVID-19 pandemic on their economic activity.

Motives and Barriers to the Location of MNEs and the Role of the Informal Economy: the Case of Greece

“…The findings of previous research indicate a negative effect of low institutional quality on direct investment in Greece. For example, corruption has a negative impact on R&D investment(Vlachos, 2022) and farmers' participation in Rural Development Schemes(Micha, Areal, Tranter and Bailey, 2015).5 The questionnaire is available at https://docs.google.com/forms/d/e/1FAIpQLSfUSBbI_8AnVdLzEU6GFJLuo3dj1RHMy1N3qGOm OkbA5wRuhg/viewform (accessed 31 August 2020).6 The reader should note that the data collected reflect the perceptions of upper management. It is not possible to perform a regression analysis because inward FDI cannot be treated as a dependent variable (for example, only the perceptions of foreign investors are recorded) and the degrees of freedom (for example, number of cases is 243 and number of variables > 60).…”