Title page 1

Contents 1

Abstract 2

Non-technical summary 3

1. Introduction 5

2. Literature 7

3. Data and Methodology 9

3.1. Empirical methodology 9

3.2. Classifying Sectors by Innovativeness 11

3.3. Institutional indicators 13

3.4. Instrumenting Institutional Factors 15

4. Empirical Results 17

5. Robustness and Additional Results 24

5.1. Controlling for Confounding Variables 24

5.2. Alternative Dependent Variables 25

5.3. Resolving Insolvency Score 26

5.4. Excluding Ireland and Luxembourg 26

6. Conclusion 27

References 29

A. Annex 33

Acknowledgements 55

Tables 18

Table 1. Results for Eurostat High-Tech Sector Classification 18

Table 2. Back-of-the-envelope calculation of the estimated increases in the high-tech investment share due to institutional and... 19

Table 3. Results for Patent Shares 21

Table 4. Results for AI Intensity 22

Table 5. Back-of-the-envelope calculation of the estimated increase in AI intensive sectors' investment share changes due to institutional... 22

Table 6. Results for AI Intensity (2019-2023) 24

Figures 5

Figure 1. High-tech vs non-high-tech sector investment share of market sector investment in the EU and in the US in 2021 5

Figure 2. Institutional Delivery and high-tech sector investment share in 2021 14

Figure 3. High-tech sectors' investment share and predicted change under institutional and structural reforms 20

Figure 4. AI intensive sectors' investment share and predicted change under institutional and structural reforms 23

Annex Tables 33

Table A1. Value added weighted average 33

Table A2. NACE Sectors Included in the Analysis 33

Table A3. Summary Statistics 35

Table A4. Standard deviations of institutional indicators 35

Table A5. First Stage Results for Eurostat High-Tech Sector Classification 36

Table A6. First Stage Results for Patent Shares 37

Table A7. First Stage Results for AI Intensity 38

Table A8. Marginal Effects for Eurostat High-Tech Sector Classification 39

Table A9. Marginal Effects for Patent Shares 39

Table A10. Marginal Effects for AI Intensity Classification 39

Table A11. Results for AI Intensity Subindicator Rankings 40

Table A12. Marginal Effects for AI Intensity Subindicator Rankings 41

Table A13. Controlling for GDP p.c. and Taxes (High-Tech Classification) 42

Table A14. Controlling for GDP p.c. and Taxes (Patent Shares) 43

Table A15. Controlling for GDP p.c. and Taxes (AI Intensity) 44

Table A16. Results for Eurostat High-Tech Sector Classification (Value Added Share as Dependent Variable) 45

Table A17. Results for Patent Shares (Value Added Share as Dependent Variable 48

Table A18. Results for AI Intensity (Value Added Share as Dependent Variable) 49

Table A19. Results for Eurostat High-Tech Sector Classification (R&D Share as Dependent Variable) 49

Table A20. Results for Patent Shares (R&D Share as Dependent Variable) 50

Table A21. Results for AI Intensity (R&D Share as Dependent Variable) 51

Table A22. Results for the Resolving Insolvency Index 51

Table A23. Results for Eurostat High-Tech Classification (Excluding Ireland and Luxembourg) 52

Table A24. Results for Patent Shares (Excluding Ireland and Luxembourg) 53

Table A25. Results for AI Intensity (Excluding Ireland and Luxembourg) 54

Annex Figures 45

Figure A1. Institutional delivery and high patenting sector investment share in 2021 45

Figure A2. Institutional delivery and AI intensive sector investment share in 2021 46

Figure A3. Average institutional delivery over time 47

Figure A4. Average EPL over time 47

Figure A5. Average Starting a Business Score over time 48