Effective government, regulation and rule of law track innovation in poorer economies

A new panel study of 34 low-income and lower-middle-income economies links specific dimensions of governance to national innovation performance between 2011 and 2023. The analysis, published open access in Discover Sustainability, combines the Global Innovation Index and its output pillars with the Worldwide Governance Indicators and a set of macroeconomic controls. Its central finding is that the governance functions most consistently associated with innovation are administrative rather than political: government effectiveness, regulatory quality, and the rule of law all display the most stable positive associations with the overall Global Innovation Index scores across the sample.

The study’s design matters for how the results should be read. Rather than treating governance as a single composite, the authors separate it into six distinct dimensions and test each against innovation outcomes measured both by the overall index and by its knowledge and technology output pillars. This structure allows the analysis to distinguish which institutional functions travel with innovation broadly and which appear only in narrower output measures. The results refine the general proposition that institutions matter by identifying administrative capacity, regulatory coherence, and legal reliability as the governance functions most closely associated with innovation performance in resource-constrained economies.

Two political dimensions show a more conditional pattern. Voice and accountability and political stability are not statistically significant in the baseline models that use the overall Global Innovation Index. However, both are positively associated with the knowledge and technology outputs pillar, suggesting that their relationship with innovation may operate through channels captured by output measures rather than through the composite score itself. The authors report this distinction explicitly, and it highlights how conclusions about governance can shift depending on which innovation metric is used.

The sixth dimension, control of corruption, proves the least stable in the analysis. Its estimated association is sensitive to the choice of covariance estimator, and it is not robust under wild cluster bootstrap inference, a resampling technique used to check whether findings survive alternative statistical assumptions. This fragility means the study cannot rule out that the corruption measure’s apparent link with innovation is an artifact of the estimation method. Taken together, the findings caution against broad institutional prescriptions: for economies with limited resources, the evidence points to practical administrative capability, coherent regulation, and dependable legal systems as the governance features most reliably associated with innovation, while leaving the roles of political voice, stability, and corruption control less settled.

Subject of Research: Governance quality and innovation in low-income and lower-middle-income economies

Article Title: How governance quality matters for innovation in low income and lower middle income economies

Article References: Nguyen-Khac, N., Tran, D. H., Huong, N. T., & Nguyen-Yen, N. (2026). How governance quality matters for innovation in low income and lower middle income economies. Discover Sustainability. https://doi.org/10.1007/s43621-026-05131-3

Image Credits: AI Generated

DOI: 10.1007/s43621-026-05131-3

Keywords: governance, innovation, Global Innovation Index, Worldwide Governance Indicators, government effectiveness, regulatory quality, rule of law, developing economies, quality, matters, income, lower