The impact of regulation on innovation

Regulatory framework conditions have been identified as important factors influencing the innovation activities of companies, industries and whole economies. Using an endogenous growth approach this chapter delivers a conceptual analysis of the impacts of economic, social and institutional regulations on innovation. Economic regulations tend to keep a high level of competitive pressure, which forces companies to realise innovations. Social regulations mainly addressing negative external effects have strong impacts on the direction of innovation activities towards the protection of the environment, the health and safety of citizens and the like. The chapter also presents some evidence on the very heterogeneous institutional regulations, including mixed evidence on the innovation effects of intellectual property rights. Overall, the evidence on the impact of different types of regulation on innovation is patchy regarding the type of regulation, the sectors, the companies and the time horizon of the impacts. In general, the short-term impacts of regulations are often negative for innovation, in contrast to their often positive long-term implications. The chapter highlights research gaps such as the lack of appropriate indicators of the regulatory framework, and a better understanding of the strategies of companies to comply with and to influence regulation. It finishes with a set of policy recommendations, including a stronger mutual recognition of the interplay of existing and new regulations with innovation and innovation policy instruments, as well as improving the implementation of regulations to foster innovation.