Do Innovation and Institutional Quality Elevate Economic Growth? Empirical Evidence from Developing Countries

Rudra P. Pradhan, Mak Arvin, Mahendhiran S. Nair (), Sara E. Bennett () and Alexander Brem
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Rudra P. Pradhan: Vinod Gupta School of Management, Indian Institute of Technology Kharagpur, Kharagpur, West Bengal 721302, India
Mahendhiran S. Nair: ��Sunway Institute for Global Strategy & Competitiveness, Sunway Business School, Sunway University, Bandar Sunway, 47500 Petaling Jaya, Selangor, Malaysia
Sara E. Bennett: �College of Business, University of Lynchburg, Lynchburg, VA 24501, USA

International Journal of Innovation and Technology Management (IJITM), 2024, vol. 21, issue 02, 1-39

Abstract: Research Highlights•An assessment of institutional quality, innovation, and economic growth in developing countries.•Long-run causality from innovation and institutional quality to economic growth is present.•Short-run directions of causality are varied among variables of interest.•Innovation and institutional quality generally positively impact economic growth.Continuous innovation is the lifeblood of a competitive economy. Furthermore, and arguably, the existence of institutions of governance of quality can be a catalyst for emerging economies to transition up the universal innovation value chain. In this context, we investigate temporal causal interactions among institutional quality, innovation, and economic growth for developing countries (DCs) spanning the period of 2005–2020. Employing a vector error-correction model (VECM), we find that for each case and specification (49 instances), there is evidence of the long-run causality from institutional quality and innovation to economic growth. Stated another way, in the long run, institutional quality and innovation Granger-cause economic growth. However, the short-run causality results differ depending on the specific measures of innovation and institutional quality. The strongest short-run conclusion is support for the feedback hypothesis for economic growth and innovation where there is a strong endogenous relationship between innovation, institutional governance, and economic growth. The empirical analysis shows over 70% of our observations support that economic growth and innovation jointly determine each other in the short run. The results suggest that DCs should develop and pursue long-term growth strategies that simultaneously develop innovation and improve institutional governance.

Keywords: Institutional quality; innovation; economic growth; vector error correction model; VECM; QQR (search for similar items in EconPapers)
JEL-codes: E31 E44 O16 O43 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1142/S0219877024500111

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