Abstract
Open economy endogenous growth theories consider physical intermediate imports as a channel through which innovation spreads across international boundaries. We build from this literature and contribute by considering trade in services as the channel through which innovation from China, Korea and Japan influences labour productivity in South Africa’s manufacturing sector between 1995Q1 – 2017Q4. Unlike previous studies, we also compute a composite innovation index using the principal component analysis. Results from the autoregressive distributed lag model are supportive of open economy endogenous growth theories for Japan and Korea. However, for China, the effect is significantly negative adding further concerns over its predatory presence in South Africa.
Highlights
The objective of this paper is to estimate the impact of Chinese, Korean and Japanese innovation spill over on labour productivity growth in South Africa’s manufacturing sector using recent data
Model Specification: To ascertain the impact of innovation embodied in service imports from China, Korea and Japan, we specify a multivariate model of the following form2: log LPt = β0 + β1 log St + β2 log Ct + β3 log Kt + β4 log Jt + εt (1) t = 1995Q1, ... ,2017Q4 where log denotes logarithm, β0 − β4 are unknown parameters to be estimated, t signifies time period, εtis the white noise error term, LP is labour productivity defined as real output per worker in manufacturing
Our main specification that is normalized with labour productivity (LP) is based on an autoregressive distributed lag model (ARDL) (10, 5, 9, 10, 5) automatically selected by the Akaike Information Criterion (AIC) as shown in figure 1
Summary
The objective of this paper is to estimate the impact of Chinese, Korean and Japanese innovation spill over on labour productivity growth in South Africa’s manufacturing sector using recent data. Open economy endogenous growth theories by Aghion and Howitt (1990), Grossman and Helpman (1991) & Coe and Helpman (1995) and provide the standard theoretical foundation upon which empirical literature on innovation spillover is grounded. These models predict that technology transcends international boundaries through trade in intermediate imports. Francois (1990), Mun and Nadiri (2002) and Guerrieri et al (2005) have shown that services are essential in the role in explaining productivity growth through the linkage and coordination of technology transfers. According to OECD (2010) econometric work needs to divert away from inputs of innovation alone and consider outputs of innovation
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