Effect of Science, Technology, Engineering, and Mathematics (STEM) Education on Technological Innovation: The Role of Institutions

Technological innovation drives long-run economic growth, yet countries with similar levels of STEM educational attainment often exhibit large differences in innovation performance. This study examines whether and how institutional quality moderates the relationship between STEM education and technological innovation. Using five-year averaged panel data for 74 countries over the period 2000–2019, we find that STEM education has a positive and statistically significant effect on resident patent applications. The magnitude of this effect increases across higher quantiles of the innovation distribution. Institutional quality measured by property rights protection and ease of doing business plays a heterogeneous moderating role: strong property rights significantly enhance the innovation returns to STEM education in low-innovation countries, while ease of doing business exerts a broader positive effect. These results remain robust to alternative estimators, sub-samples, alternative measures, and endogeneity checks. Overall, the findings highlight that institutional improvements are essential complements to STEM investment. Policy strategies should therefore be context specific, combining human capital development with targeted institutional reforms.