Causality between Technological Innovation and Economic Growth: Evidence from the Economies of Developing Countries

Abstract

Economic growth is a tool for measuring the development and progress of countries, and technological innovation is one of the factors affecting economic growth and contributes to the development and modernization of production methods. Therefore, technological innovation is the main driver for economic growth and human progress. Spending on innovation, research and development as well as investment in innovation supports competition and progress. Accordingly, sustainable economic growth is achieved. This ensures the preservation of resources for future generations and the achievement of economic and social growth. Moreover, a sustainable educational level of the workforce, investment in research, creation of new products, and investor access to stock markets will be ensured through the development of the public and private sectors and the improvement of people’s living conditions. Our study aimed to measure the impact of technological innovation on economic growth in developing countries during the period 1990–2018. To this end, the error correction model (ECM) method has been applied. The results showed that the variables are unstable in the level and stable after taking the first difference. Co-integration was also tested using the ECM, and Granger’s causality test for the direction of causation. The test results showed that an increase in technological innovation indicators (such as spending on education, number of patents for residents and non-residents, R&D expenditures, number of researchers in R&D, high-tech exports, and scientific and technical research papers.) leads to an increase in economic growth in the short term and the long-run with a long-run and two-way causal relationship between technological innovation and GDP, and short-run causation spanning from technological innovation to GDP. The study also concluded that technological innovation has a direct impact on the sustainability of a country’s economic growth, which is why it is crucial to adopt strong policies that encourage international investors to allocate capital for development in developing countries and thus encourage more research and development.