What nurtures fourth industrial revolution? An investigation of economic and social determinants of technological innovation in advanced economies

Abstract

The Fourth Industrial Revolution is characterized by technological transformations, artificial intelligence, and the digital revolution. The technological innovation in the Fourth Industrial Revolution is expected to be a supply-side miracle, with long term gains in the efficiency, as well as production. The widespread variability in the innovation performance of countries has led to the development of many underlining theoretical explanations. These explanations primarily revolve around the role of international trade, research and development, foreign direct investment, human capital, and the financial development in the Fourth Industrial Revolution. Previous studies, however, have only looked at the micro-level determinants of technological innovation. Also, previous studies have tended to ignore the cross-sectional dependency among countries, and the heterogeneity in analysing the issues that pertain to technological innovation. This study examines the macroeconomic indicators of technological innovation in G-7 countries from the year 1996 to 2017. The results show that globalization, R&D, GDP, financial development, and human capital are important factors in explaining technological innovation. Furthermore, the results of the panel causality test suggest that there is bidirectional causality from economic globalization, financial development, human capital index, research and development expenditure, and real GDP to technological innovation, and vice versa. The findings from this study may be helpful when designing policies that are related to globalization, financial development, and innovation.