From code to creativity: The impact of legal origins on innovation of private enterprises

This study explores whether legal origins influence the innovation investments of private enterprises. We hypothesize that enterprises in civil law countries, where legal frameworks are codified and regulations are prescriptive, are more likely to invest in new product/service innovation due to the predictability and stability of their legal environments. Conversely, enterprises in common law countries, with their flexible and adaptive legal systems, are expected to prioritize process innovation, driven by the need to optimize operations and navigate regulatory changes more easily. Using data from the World Bank Enterprise Surveys covering private enterprises in 113 countries between 2010 and 2024, we find strong evidence supporting these hypotheses. Enterprises in civil law countries show a higher propensity for product/service innovation, while those in common law countries focus more on process innovation. These findings highlight the importance of legal and institutional frameworks in shaping innovation strategies, with several important implications.