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Do Innovation and Institutional Quality Elevate Economic Growth? Empirical Evidence from Developing Countries

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  • Rudra P. Pradhan

    (Vinod Gupta School of Management, Indian Institute of Technology Kharagpur, Kharagpur, West Bengal 721302, India)

  • Mak B. Arvin

    (��Department of Economics, Trent University, Peterborough, Ontario K9L 0G2, Canada)

  • Mahendhiran S. Nair

    (��Sunway Institute for Global Strategy & Competitiveness, Sunway Business School, Sunway University, Bandar Sunway, 47500 Petaling Jaya, Selangor, Malaysia)

  • Sara E. Bennett

    (�College of Business, University of Lynchburg, Lynchburg, VA 24501, USA)

  • Alexander Brem

    (�Chair of Entrepreneurship in Technology and Digitization, University of Stuttgart, Fuerth 90762, Germany)

Abstract

Research Highlights•An assessment of institutional quality, innovation, and economic growth in developing countries.•Long-run causality from innovation and institutional quality to economic growth is present.•Short-run directions of causality are varied among variables of interest.•Innovation and institutional quality generally positively impact economic growth.Continuous innovation is the lifeblood of a competitive economy. Furthermore, and arguably, the existence of institutions of governance of quality can be a catalyst for emerging economies to transition up the universal innovation value chain. In this context, we investigate temporal causal interactions among institutional quality, innovation, and economic growth for developing countries (DCs) spanning the period of 2005–2020. Employing a vector error-correction model (VECM), we find that for each case and specification (49 instances), there is evidence of the long-run causality from institutional quality and innovation to economic growth. Stated another way, in the long run, institutional quality and innovation Granger-cause economic growth. However, the short-run causality results differ depending on the specific measures of innovation and institutional quality. The strongest short-run conclusion is support for the feedback hypothesis for economic growth and innovation where there is a strong endogenous relationship between innovation, institutional governance, and economic growth. The empirical analysis shows over 70% of our observations support that economic growth and innovation jointly determine each other in the short run. The results suggest that DCs should develop and pursue long-term growth strategies that simultaneously develop innovation and improve institutional governance.

Suggested Citation

  • Rudra P. Pradhan & Mak B. Arvin & Mahendhiran S. Nair & Sara E. Bennett & Alexander Brem, 2024. "Do Innovation and Institutional Quality Elevate Economic Growth? Empirical Evidence from Developing Countries," International Journal of Innovation and Technology Management (IJITM), World Scientific Publishing Co. Pte. Ltd., vol. 21(02), pages 1-39, April.
    • Handle: RePEc:wsi:ijitmx:v:21:y:2024:i:02:n:s0219877024500111
    DOI: 10.1142/S0219877024500111
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    Keywords

    Institutional quality; innovation; economic growth; vector error correction model; VECM; QQR;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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