Abstract
Integrating the insights from both institutional theory and economic geography, we develop a new conceptual framework to explain how formal and informal institutions in developing countries influence knowledge exchanges within and across geographical locations, thus affecting entrepreneurs’ and firms’ innovative behaviors and outputs. We suggest that the prevalence of informal institutions in developing countries increases the importance of geographic proximity for knowledge exchanges. At the same time, informal institutions provide alternative channels for maintaining non-local social interactions that facilitate knowledge exchanges among geographically distant firms. Using China as the context, we provide theoretical propositions that illustrate these mechanisms in terms of the different innovative behaviors between domestic Chinese firms and multinational companies operating in China. This article provides a fresh perspective on how the geography of innovation is embedded in institutional environments. It enriches the literature by highlighting the important role of informal institutions in influencing innovation and how firms, especially entrepreneurial ones, vary their innovative behaviors depending on the extent of their embeddedness in the informal institutions.
$Authors contributed equally and listed in alphabetical order.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
References
Abdi, E., & Aulakh, P. S. (2012). Do country-level institutional frameworks and interfirm governance arrangements substitute or complement in international business relationship. Journal of International Business Studies, 43(5), 477–497.
Abrahamson, E., & Fombrun, C. J. (1994). Macrocultures: Determinants and consequences. Academy of Management Review, 19(4), 728–755.
Alcácer, J., & Chung, W. (2007). Location strategies and knowledge spillovers. Management Science, 53(5), 760–776.
Almeida, P., & Kogut, B. (1999). Localization of knowledge and the mobility of engineers in regional networks. Management Science, 45(7), 905–917.
Almeida, P., & Phene, A. (2004). Subsidiaries and knowledge creation: The influence of the MNC and host country on innovation. Strategic Management Journal, 25(8/9), 847–864.
Arikan, A. T. (2009). Interfirm knowledge exchanges and the knowledge creation capability of clusters. Academy of Management Review, 34(4), 658–676.
Arora, A., Fosfuri, A., & Gambardella, A. (2001). Markets for technology: The economics of innovation and corporate strategy. Cambridge, MA: MIT Press.
Arrow, K. J. (1962). Economic welfare and the allocation of resources for invention. In R. Nelson (Ed.), The rate and direction of inventive activity (pp. 609–625). Princeton, NJ: Princeton University Press.
Audretsch, D. B., & Feldman, M. P. (1996). R&D spillovers and the geography of innovation and production. American Economic Review, 86(3), 630–640.
Baptista, R., & Swann, P. (1998). Do firms in clusters innovate more? Research Policy, 27(5), 525–540.
Batjargal, B., Hitt, M. A., Tsui, A. S., Arregle, J. L., Webb, J. W., & Miller, T. (2013). Institutional polycentrism, entrepreneurs’ social networks and new venture growth. Academy of Management Journal, 56(4), 1024–1049.
Beaudry, C. (2001). Entry, growth, and patenting in industrial clusters: A study of the aerospace industry in the UK. International Journal of the Economics of Business, 8(3), 405–435.
Bell, G. G. (2005). Clusters, networks, and firm innovativeness. Strategic Management Journal, 26(3), 287–295.
Bell, G. G., & Zaheer, A. (2007). Geography, networks, and knowledge flow. Organization Science, 18(6), 955–972.
Bell, S. J., Tracey, P., & Heide, J. B. (2009). The organization of regional clusters. Academy of Management Review, 34(4), 623–642.
Dyer, J. H., & Singh, H. (1998). The relational view: Cooperative strategy and sources of interorganizational competitive advantage. Academy of Management Review, 23(4), 660–679.
Eapen, A. (2012). Social structure and technology spillovers from foreign to domestic firms. Journal of International Business Studies, 43(2), 244–263.
Fan, G., & Wang, X. (2006). NERI index of marketization of China’s provinces. Beijing: Economics Science Press.
Frenzen, J., & Nakamoto, K. (1993). Structure, cooperation, and the flow of market information. Journal of Consumer Research, 20(December), 360–375.
Ganesan, S., Malter, A. J., & Rindfleish, A. (2005). Does distance still matter? Geographic proximity and new product development. Journal of Marketing, 69(October), 44–60.
Geng, X., Huang, K. G., & Wang, H. (2015). Institutions and geography of innovation: Innovative outputs of multinational enterprises and domestic firms in China. Working paper, Singapore Management University.
Govindarajan, V., & Ramamurti, R. (2011). Reverse innovation, emerging markets, and global strategy. Global Strategy Journal, 1, 191–205.
Grossman, G., & Helpman, E. (1991). Innovation and growth in the global economy. Cambridge, MA: MIT Press.
Hansen, M. T. (1999). The search-transfer problem: The role of weak ties in sharing knowledge across organization subunits. Administrative Science Quarterly, 44(1), 82–111.
Hansen, M. T., & Lovas, B. (2004). How do multinational companies leverage technological competencies? Moving from single to interdependent explanations. Strategic Management Journal, 25(8–9), 801–822.
Hitt, M. A., Ahlstrom, D., Dacin, M. T., Levitas, E., & Svobodina, L. (2004). The institutional effects on strategic alliance partner selection in transition economies: China vs Russia. Organization Science, 15(2), 173–185.
Hofstede, G. (2001). Culture’s consequences: Comparing values, behaviors, institutions and organizations across nations (2nd ed.). Thousand Oaks, CA: Sage.
Holmes, M., Miller, T., Hitt, M. A., & Salmador, P. (2013). The interrelationships among informal institutions, formal institutions, and inward foreign direct investment. Journal of Management, 39(2), 531–566.
Hu, M. C., & Mathews, J. A. (2008). China’s national innovative capacity. Research Policy, 37(9), 1465–1479.
Huang, K. G. (2010). China’s innovation landscape. Science, 329, 632–633.
Huang, K. G., & Ertug, G. (2014). Mobility, retention and productivity of genomics scientists in the U.S. Nature Biotechnology, 32(9), 953–958.
Huang, K. G., Geng, X., & Wang, H. (2015). Institutional regime shift in intellectual property rights and patenting strategies of firms in China. Working paper, National University of Singapore.
Jaffe, A. B. (1986). Technological opportunity and spillovers of R&D: Evidence from firms’ patents, profits, and market value. American Economic Review, 76(5), 984–1001.
Jaffe, A. B., Trajtenberg, M., & Henderson, R. (1993). Geographic localization of knowledge spillovers as evidenced by patent citations. Quarterly Journal of Economics, 108(3), 577–598.
Khanna, T., & Palepu, K. (2000). The future of business groups in emerging markets: Long-run evidence from Chile. Academy of Management Journal, 43(3), 268–285.
Khoury, T. A., Cuervo-Cazurra, A., & Dau, L. A. (2014). Institutional outsiders and insiders: The response of foreign and domestic inventors to the quality of intellectual property rights protection. Global Strategy Journal, 4(3), 200–220.
Kostova, T., & Zaheer, S. (1999). Organizational legitimacy under conditions of complexity: The case of the multinational enterprise. Academy of Management Review, 24, 64–81.
Krugman, P. (1991). Geography and Trade. Cambridge, MA: MIT Press.
Laursen, K., Masciarelli, F., & Prencipe, A. (2012). Regions matter: How localized social capital affects innovation and external knowledge acquisition. Organization Science, 23(1), 177–193.
Luo, Y. (2007). From foreign investors to strategic insiders: Shifting parameters, prescriptions and paradigms for MNCs in China. Journal of World Business, 42(1), 14–34.
Marshall, A. (1920). Principles of Economics (8th ed.). London: Macmillan.
Maskell, P. (2001). Towards a knowledge-based theory of the geographical cluster. Industrial and Corporate Change, 10(4), 921–943.
McCann, B. T., & Folta, T. B. (2008). Location matters: Where we have been and where we might go in agglomeration research. Journal of Management, 34(3), 532–565.
Morgan, K. (1997). The learning region: Institutions, innovation and regional renewal. Regional Studies, 31(5), 491–503.
Nordhaus, W. D. (1969). Invention, growth and welfare: A theoretical treatment of technological change. Cambridge, MA: The MIT Press.
North, D. C. (1990). Institutions, institutional change, and economic performance. Cambridge, MA: Cambridge University Press.
Owen-Smith, J., & Powell, W. W. (2004). Knowledge networks as channels and conduits: The effects of spillovers in the Boston biotechnology community. Organization Science, 15(1), 5–21.
Peng, M. W., & Heath, P. S. (1996). The growth of the firm in planned economies in transition: Institutions, organizations, and strategic choice. Academy of Management Review, 21(2), 492–528.
Pisano, G. P. (1990). The R&D boundaries of the firm: An empirical analysis. Administrative Science Quarterly, 35(1), 153–176.
Polanyi, M. (1966). The tacit dimension. New York: Double Day.
Porter, M. E. (1998). Clusters and the new economics of competition. Harvard Business Review, 76(6), 77–90.
Pouder, R., & St. John, C. H. (1996). Hot spots and blind spots: Geographical clusters of firms and innovation. Academy of Management Review, 21(4), 1192–1225.
Rindfleisch, A., & Moorman, C. (2001). The acquisition and utilization of information in new product alliances: A strength-of-ties perspective. Journal of Marketing, 65(April), 1–18.
Rosenkopf, L., & Almeida, P. (2003). Overcoming local search through alliances and mobility. Management Science, 49(6), 751–766.
Saxenian, A. (1994). Regional advantage: Culture and competition in Silicon Valley and Route 128. Cambridge, MA: Harvard University Press.
Scott, W. R. (1995). Institutions and organizations. Thousand Oaks, CA: Sage.
Shaver, J. M., & Flyer, F. (2000). Agglomeration economies, firm heterogeneity, and foreign direct investment in the United States. Strategic Management Journal, 21(12), 1175–1193.
Singh, J. (2007). Asymmetry of knowledge spillovers between MNCs and host country firms. Journal of International Business Studies, 38(5), 764–786.
Sorenson, O., & Audia, P. (2000). The social structure of entrepreneurial activity: Geographic concentration of footwear production in the United States, 1940–1989. American Journal of Sociology, 106(2), 424–461.
Sorenson, O., & Stuart, T. E. (2001). Syndication networks and the spatial distribution of venture capital investments. American Journal of Sociology, 106(6), 1546–1588.
Storper, M. (1997). The regional world: Territorial development in a global economy. New York: Guilford Press.
Stuart, T., & Sorenson, O. (2003). The geography of opportunity: Spatial heterogeneity in founding rates and the performance of biotechnology firms. Research Policy, 32(2), 229–253.
Teece, D. J. (1986). Profiting from technological innovation: Implications for integration collaboration, licensing and public policy. Research Policy, 15(6), 285–305.
Uzzi, B. (1996). The sources and consequences of embeddedness for the economic performance of organizations: The network effect. American Sociological Review, 61(4), 674–698.
Webb, J. W., Tihanyi, L., Ireland, R. D., & Sirmon, D. G. (2009). You say illegal, I say legitimate: Entrepreneurship in the informal economy. Academy of Management Review, 34(3), 492–510.
Whittington, K. B., Owen-Smith, J., & Powell, W. W. (2009). Networks, propinquity, and innovation in knowledge-intensive industries. Administrative Science Quarterly, 54(1), 90–122.
Williamson, O. E. (1991). Comparative economic organization: The analysis of discrete structural alternatives. Administrative Science Quarterly, 36(2), 269–296.
Xiao, Z., & Tsui, A. S. (2007). When brokers may not work: The cultural contingency of social capital in Chinese high-tech firms. Administrative Science Quarterly, 52(1), 1–31.
Xin, K., & Pearce, J. L. (1996). Guanxi: Connections as substitutes for formal institutional support. Academy of Management Journal, 39(6), 1641–1658.
Yang, M. (1994). Gifts, favors, and banquets. Ithaca, NY: Cornell University Press.
Zhao, M. (2006). Conducting R&D in countries with weak intellectual property rights protection. Management Science, 52(8), 1185–1199.
Zucker, L. G. (1987). Institutional theories of organization. Annual Review of Sociology, 13, 443–464.
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2017 The Author(s)
About this chapter
Cite this chapter
Geng, X., Huang, K.G. (2017). Informal Institutions and the Geography of Innovation: An Integrative Perspective. In: Little, S., Go, F., Poon, TC. (eds) Global Innovation and Entrepreneurship. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-43859-7_4
Download citation
DOI: https://doi.org/10.1007/978-3-319-43859-7_4
Published:
Publisher Name: Palgrave Macmillan, Cham
Print ISBN: 978-3-319-43858-0
Online ISBN: 978-3-319-43859-7
eBook Packages: Business and ManagementBusiness and Management (R0)