Innovation and Labour Productivity in BRICS Countries: Panel Causality and Co-integration

Abstract

Schumpeter defined innovation as new goods which do not exist in the market, a new production method, a new market or raw material source, a new field of business, a new financial method or an new organization style. From Schumpeter's definition to today innovation appeared in different forms and was an important factor in economic growth equations. Although it is generally accepted that innovation increases the efficiency and productivity of capital, it can also be said that it increases the productivity of labour force as well. Recently the ease and prevalence of performing research through the internet, as well as developments in information and communication technologies had a positive effect on load and productivity of labour force accelerated workflow and also increased the efficiency of production processes and output amounts. Developments of information and communication technologies especially provided development opportunities for countries having high population and labour force and also a high development potential due to an increase in efficiency and productivity of labour force and helped them to have faster and easier economic growth or development. In this study, the aim is to research the effects of innovation on labour productivity for the 5 countries defined as BRICS (Brazil, Russia, India, China, South Africa) which have drawn attention in recent years due to their economic performances by using panel data and dynamic panel data methods. The stationarity of the variables were determined by annual data of the 2000-2012 period and the second generation unit root tests. Initially, labour productivity growth equations estimated, and then short-run relationships were researched by using VAR and Granger causality tests, while long-run relationships can’t be analysed because labour productivity variable is stationary at level or namely I(0). The results of the study produced a positive relationship between innovation and labour productivity.