The Impact of Formal Institutions on Knowledge Economy

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.