How do dimensions of institutional quality improve Italian regional innovation system efficiency? The Knowledge production function using SFA

Abstract This paper investigates the contribution of different dimensions of institutional quality on the efficiency of the Italian regional innovation system (RIS) through the application of a knowledge production function estimated within a Stochastic Frontier Analysis environment. Though most of the dimensions of institutional quality considered in the analysis are found to play no role in affecting RIS efficiency, we detect a positive and highly significant impact of government effectiveness on the variable of interest. This result is robust to different assumptions about the underlying technology, to alternative lag structures between R&D and patenting activities and to the application of different R&D inputs. Moreover, this evidence is confirmed once instead of the RIS efficiency, we appraise the impact of institutional quality on the amount of registered patents, through the application of a canonical knowledge production function. In terms of policy implications, our analysis indicates that measures that strengthen the endowment of regional socio-economic structures are highly recommended as they enhance the efficiency of the RIS and stimulate patenting activities. Finally, interventions for Southern regions should be designed to reduce the technological and efficiency gap with the most advanced regions in the country.