Breaking or making futures: How laws and regulations shape innovation in emerging innovation systems

Abstract

Regulatory and legislative frameworks are essential in fostering an environment conducive to innovation. In emerging innovation systems, market imperfections, along with power and information asymmetries, can create a disconnect between the design and implementation of regulations and the needs of innovative organizations. This paper explores how regulations and laws related to labor and environmental protection, product safety and consumer protection, intellectual property rights, and taxation impact innovation outcomes in seven emerging European innovation systems. Our findings indicate that restrictive regulations increase the likelihood of innovation abandonment and tend to encourage incremental rather than radical innovation. Companies often respond to these regulatory and legal barriers by engaging in collaborative innovation. Notably, these effects are observed primarily in older firms that have established their competitiveness in a production-oriented environment. The results highlight the importance of thoughtful policy design to enhance innovation dynamics in emerging innovation systems.