Political instability, pro-business market reforms and their impacts on national systems of innovation

► We examine the relationships between political instability, pro-business market reforms and national systems of innovation in 107 countries. ► Results indicate that political instability in a country has a negative impact on its national system of innovation. ► Pro-business market reforms also have a negative impact on national systems of innovation, particularly in S&T developing and lagging countries. ► Pro-business market reforms positively moderate the relationship between political instability and national systems of innovation. We investigate the impacts of political instability and pro-business market reforms on national systems of innovation (NSI) across a range of developing and developed countries. Evidence suggests that national systems of innovation are most likely to flourish in developed, politically stable countries and less likely to prosper in historically unstable countries. While research has shown that pro-business market reforms can be a valuable policy instrument to boost economic development in less developed countries, the extent to which these reforms affect a country's innovativeness has been neglected in the literature. In particular, the degree to which pro-business market reforms may compensate for political instability when it comes to fostering national systems of innovation remains under-researched. Our findings support established arguments concerning the strong influence of political instability on inputs to national innovation systems. We find, however, mixed effects for pro-business market reforms. While results indicate a negative direct influence on NSI, they consistently show a strong moderating effect that counterbalances the negative impact of political instability, especially in those developing country environments where science and technology are lagging. These results provide important implications for policymakers as well as for our understanding of emerging and transition economies and national technological capability.