The Impact of the Institutional Quality on the Development of Sustainable Innovation: A Multilevel Analysis

ABSTRACT

What causes sustainable innovation has been the subject of recent academic and policy debate. This study examines whether the relationship between firm characteristics and sustainable innovation differs in European and non‐European countries with different institutional contexts. Drawing on institutional theory and leveraging data from the 2020 Eurobarometer survey involving 15,000 interviews in 36 European and non‐European countries, multilevel econometric analysis of firms in these countries reveals a robust connection between sustainable innovation and firm‐specific factors and institutional quality. We combine the firm‐level data from Eurobarometer 2020 with multiple sources of country‐level data to measure the impact of institutional quality on ‐sustainable innovation. Using a multilevel logistic regression model the findings indicate that small and medium‐sized enterprises tend to develop more sustainable innovations, and countries with superior institutional quality and institutional trust foster an environment conducive to sustainable innovation. The paper concludes with implications for theory and policy, suggesting how governments can influence the growth and development of sustainable innovation.