Does Innovation Capacity Constraint Economic Growth in Republic of Macedonia

Abstract

The main goal of the paper is to answer the question if the lack of innovation capacity and low productivity is binding constraint to economic growth of Macedonian economy. To fulfill this goal we use two empirical techniques. Growth accounting production approach is a useful technique which estimate the relative contribution of technological progress to economic growth rate and allow us to identify the current growth pattern. The estimated results by applying growth accounting based of decomposition production approach show that the capital accumulation has significant contribution to growth of Macedonian economy. But, what is more worrying here is the fact that capital accumulation based on recent investment is not appropriately followed by technological progress, giving us a strong argument that this capital structure is not capable to promote the long-run economic growth. For illustration, our estimated results show that the contribution of technological progress as a part of total factor productivity is negligible (only 8,5% of the average rate of economic growth in the analyzed period is based on technological progress) compare with its contribution in more developed countries. The other method that was used in the paper so as to fulfill the main goal of the paper is the international benchmark analysis. This empirical tool allowed us to investigate the innovation capacity of Macedonian economy in a comparative manner with the countries in the wide region via number of patent’s application and firms’ capacity for adaptation and transfer of new technology. The number of registered patents is much larger than expected from a country with such a size and development level as Republic of Macedonia, but the analyze of applicants structure show that non-resident applicants are a bit larger than the resident applicants, indicating that domestic science and R&D sector is not enough competitive.Additionally, the analysis indicates the Macedonian companies lagging behind the companies in more countries in the region regarding the expenditure on R&D and the abilities to adopt new technology. This paper tend to give a useful insights to policymakers in Macedonia that the process of creation national innovation system.