Corporate innovation and economic freedom: Cross-country comparisons

This paper studies the impact of a country's integrated economic freedom on corporations undertaking innovative activities. Using 5809 firms from 29 countries filed and granted U.S. patents over the 1984-2006 period, we find strong and robust evidence of a positive relationship between corporate innovation and the cross-country differences in economic freedom. This finding suggests that firms domiciled in a country with a sound regulatory system, limited government, regulation efficiency, and open markets facilitate corporations undertaking innovative activities. Specifically, we find that the positive relationship is more pronounced through the channel of labor freedom. This is consistent with the notion that more economic freedom enhances innovation competence in the global market.