Political gridlock has more effect on innovation and investment than economic policies, according to a new study from the Kelley School of Business.
The study looked at the number of patents from 43 mature democracies over time and found, while no measurable spike or decline happened as a result of any particular party being in power, the number of patents fell drastically when political decisions were at a standstill.
“Whether it is left versus the rest or center versus the rest or right versus the rest, no party matters,” said Utpal Bhattacharya, associate professor of finance in Kelley.
“Under both parties there will be innovations, except in different things.”
The study also took into account the quality and originality of the patents by measuring both the total number of times the patent was cited and the number of times it was cited by other industries.
Bhattacharya used a hypothetical energy company as an example.
If there is a close election, and an energy company is aware that the Democrat representatives support clean energy and the Republican representatives support coal or oil, two very different things, the company won’t know what to do, he said.
If the business knows Republicans will be in power, investing in innovations in coal and oil makes sense. And if the Democrats will be in power, it is more reasonable to invest
in energy sources such as solar and wind, Bhattacharya said.
Therefore, he said, in a close election, the smartest move for a business is to wait to file patents.
Collecting the data took Bhattacharya and his coauthor Xuan Tian, an assistant professor of finance, approximately one full year.
Bhattacharya said the study is interdisciplinary, blending politics and finance.
In future studies, he hopes to explore whether more change is brought about in
investment or innovation and what fields are affected most.
Bhattacharya said he became interested in conducting this study through his personal interest in politics.
He also pointed out that while a lot of finance research may focus on the impacts of political uncertainty, theirs looked at whether or not the policies caused a change.
Bhattacharya said he had expected to find they would.
“We knew that political uncertainty is a bad thing, but we always thought policies would matter,” he said. “Political compromise is good for all of us.”
Follow reporter Anna Hyzy on Twitter @annakhyzy.