Abstract
PurposeThe purpose of this study is to analyze the performance of indigenous innovation in developing countries in the era of trade liberalization. It analyzes indigenous innovation from research and development (R&D) investments to innovation output and its effect on economic growth.Design/methodology/approachThe sample for this study includes 20 middle-income countries across five continents for the period between 1994 and 2018. The study employs the Crepon Duguet and Mairessec CDM model in a panel data setting to do a multistage analysis of the innovation process. A vector error correction model VECM is employed to test for Granger causality between the variables investigated.FindingsThe results show that imports and foreign direct investments (FDI) have generally have short-run and long-run causal effects on domestic R&D investments. In regions where imports and FDI do not have individual causal effects on innovation output, a joint increase in each of them and R&D have both short-run and long-run causal effects. Indigenous innovation is a significant contributor to economic growth when a country can produce and export novel products.Research limitations/implicationsThe sample is only limited to developing economies, and due to the unavailability of data, only 20 countries were captured.Practical implicationsImported products and FDI are critical to the innovation drive when such activities are targeted at enhancing indigenous innovation from R&D to the production of new products. Hence, policy formulation should encourage the absorption of foreign technologies that serve as inputs to indigenous innovation.Originality/valueThis paper focuses specifically on indigenous innovation and analyses the influence of foreign technologies in this effort. It tests the moderating roles of imports and FDI in the relationship between R&D and innovation output, concluding that both variables enhance the effect of R&D on innovation output.
Highlights
Endogenous economic growth depends on several factors including technological innovation. Schumpeter (1934) posited that technological innovation plays a critical role in the development of a nation
Cross-sectional dependence among variables could be due to globalization and international trade that make it easy for a shock in one economy to affect other economies as well (Nazlioglu, 2011)
4.3 Results of model estimation This section presents the results of the granger panel vector error correction model (VECM) causality of the variables tested in this study
Summary
Endogenous economic growth depends on several factors including technological innovation. Schumpeter (1934) posited that technological innovation plays a critical role in the development of a nation. Several researchers have extensively studied the role that innovation plays in economic development (Pece et al, 2015; Hu, 2015; Broughel and Thierer, 2019) Most of these scholars found a positive and significant effect of innovation on economic growth. The economic growth of a society is largely accounted for by the extent to which that society engages in innovation activities, because low levels of innovation activity hinder economic growth (Awdeh and Hamadi, 2019). While agreeing with this notion, some scholars have established a unidirectional causality between the two variables. One of the major strategies for developing countries to grow and catch up with the developed world is through innovation at the micro and macro levels
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