Tolerance and innovation: the role of institutional and social trust

The impact of freedom on economic growth has attracted significant attention from researchers and policy makers around the globe. Besides notions of economic freedom, a rapidly growing body of literature stresses the role of personal freedoms and tolerance. It is argued that tolerance is essential for innovation because its creates an open environment where creativity and knowledge spillovers. However, mixed empirical evidence suggests that the relationship between tolerance and freedom is more nuanced towards additional social factors, such as the role of trust and other institutions. This paper re-investigates whether and to which extent notions of social and institutional trust affect the impact of tolerance on innovation using an original data set spanning three broad regions of the global and the 50 US states and 31 Chinese regions. Our findings support that tolerance and trust play an important role in stimulating innovation performance, however, the exact nature of the relationships is influenced by economic development. Our study fits into current debate about the role of sociocultural and institutional underpinnings in national innovation systems. As well as it aims to contribute to the almost currently re-starting debate about the influence of freedom and the advantage and disadvantages of diversity on economic performance.