High on Innovation: the Impact of Liberalization Policies on Innovation
Abstract: This paper investigates the impact of liberalization policies on innovation. In particular, we measure the impact of two liberalization policies (legalization of medicinal marijuana and legalization of same-sex civil unions and domestic partnerships) and one anti-liberalization policy (passage of abortion restrictions) on patenting rate. Our empirical strategy exploits the staggered timing of legalization policies across different states in the United States. Our findings show that after controlling for state-level R&D and education-specific expenditures, liberalization policies increased patenting by 10% to 16% at the state level. In contrast, we find that the passage of an extra abortion restriction decrease patenting by 2%. In our exploration of the underlying mechanisms, we find a positive association between the enactment of liberalization policies and the inter-state migration of talent. Even after excluding mobile inventors, we still find that liberalization policies are associated with an increase in the patenting rate of existing residents. Our results suggest that liberalization policies increase regional innovation by potentially attracting creative types from other regions as well as facilitating higher levels of innovation among the existing residents. We discuss implications for regional and organizational policies.
