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THE IMPACT OF INNOVATION ON ECONOMIC GROWTH: THE SPILLOVER EFFECT OF FOREIGN DIRECT INVESTMENT
Corresponding Author(s) : Nguyen Tran Thai Ha
Humanities & Social Sciences Reviews,
Vol. 8 No. 2 (2020): March
Abstract
Purpose of the study: Innovation is seen as the key to improving quality and productivity, thereby promoting competition and economic growth. This study analyzes the impact of innovation on economic growth through various measures, such as research and development spending, the number of researchers, number of patents as well as trademark registrations. Research results are evidence to recommend policies for intellectual-based economic growth.
Methodology: Literature review and empirical analysis conducted in the study. The empirical method is a two-step System Generalize Methods of Moments (GMM), aiming at reliable results. Accessing the World Bank Database, research data from 64 developed and developing countries are collected from 2006 to 2014.
Main Findings: The empirical findings show that innovation plays a crucial contribution in promoting economic growth, similar to national openness and government spending on education. This study also finds a positive impact on foreign investment flows and their spillover role in enhancing the correlation between innovation and economic growth.
Applications of this study: The findings of this study focus on the contributions of innovation, foreign direct investment inflows, and other macro factors that can be enforced to improve economic growth by policymakers.
Novelty/Originality of this study: The study uses different measures of innovation, including inputs such as the number of researchers, research and development expenditure, and outputs as the number of patents and number of trademark registrations. Empirical findings are found consistently, thus confirming that innovation is very important for economic growth. The study also shows convincing evidence confirming the positive contribution of foreign direct investment as well as its spillover effect on innovation and economic growth.
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- Aghion, P., Harmgart, H., & Weisshaar, N. (2010). Fostering Growth in CEE Countries: A Country-tailored Approach to Growth Policy (Vol. Chapter 3). Edward Elgar Publishing. https://doi.org/10.4337/9780857935212.00011 DOI: https://doi.org/10.4337/9780857935212.00011
- Barro, R. J., & Xavier, S.-i.-M. (1995). Economic Growth. McGraw-Hill.
- Bhattacharyya, P. (2019, 12/04). Public Expenditure on Education and Economic Growth: A State-Level Analysis in India. Humanities & Social Sciences Reviews, 7(6), 533-539. https://doi.org/10.18510/hssr.2019.7683 DOI: https://doi.org/10.18510/hssr.2019.7683
- Blundell, R., Bond, S., & Windmeijer, F. (2001). Estimation in Dynamic Panel Data Models: Improving on the Performance of the Standard Gmm Estimator. In H. B. Badi, B. F. Thomas, & R. C. Hill (Eds.), Nonstationary Panels, Panel Cointegration, and Dynamic Panels (Vol. 15, pp. 53-91). Emerald Group Publishing Limited. https://doi.org/10.1016/S0731-9053(00)15003-0 DOI: https://doi.org/10.1016/S0731-9053(00)15003-0
- Cullet, P. (2005). Intellectual Property Protection and Sustainable Development. New Delhi: LexisNexis Butterworths.
- Daizadeh, I. (2009, 2009/04/16). An Intellectual Property-Based Corporate Strategy: An R&D Spend, Patent, Trademark, Media Communication, and Market Price Innovation Agenda. Scientometrics, 80(3), 731-746. https://doi.org/10.1007/s11192-008-2105-9 DOI: https://doi.org/10.1007/s11192-008-2105-9
- Dixit, A., & Stiglitz, J. (1977). Monopolistic Competition and Optimum Product Diversity. American Economic Review, 67(3), 297-308.
- Erdal, L., & Göçer, İ. (2015, 2015/07). The Effects of Foreign Direct Investment on R&D and Innovations: Panel Data Analysis for Developing Asian Countries. Procedia - Social and Behavioral Sciences, 195, 749-758. https://doi.org/10.1016/j.sbspro.2015.06.469 DOI: https://doi.org/10.1016/j.sbspro.2015.06.469
- Furman, J. L., Porter, M. E., & Stern, S. (2002, 2002/08). The Determinants of National Innovative Capacity. Research Policy, 31(6), 899-933. https://doi.org/10.1016/s0048-7333(01)00152-4 DOI: https://doi.org/10.1016/S0048-7333(01)00152-4
- Gans, J. S., & Stern, S. (2003, 2003/02). The Product Market and the Market for “Ideasâ€: Commercialization Strategies for Technology Entrepreneurs. Research Policy, 32(2), 333-350. https://doi.org/10.1016/s0048-7333(02)00103-8 DOI: https://doi.org/10.1016/S0048-7333(02)00103-8
- Gittleman, M., & Wolff, E. N. (1995). R&D Activity and Cross-Country Growth Comparisons. Cambridge Journal of Economics, 19(1), 189-207.
- Greenhalgh, C., & Longland, M. (2005, 2005/11). Running to Stand Still? – the Value of R&D, Patents and Trade Marks in Innovating Manufacturing Firms. International Journal of the Economics of Business, 12(3), 307-328. https://doi.org/10.1080/13571510500299326 DOI: https://doi.org/10.1080/13571510500299326
- Grossman, G. M., & Helpman, E. (1991, 1991/01). Quality Ladders in the Theory of Growth. The Review of Economic Studies, 58(1), 43. https://doi.org/10.2307/2298044 DOI: https://doi.org/10.2307/2298044
- Grossman, G. M., & Helpman, E. (1994). Endogenous Innovation in the Theory of Growth. Journal of Economic Perspectives, 8(1), 23-44. https://doi.org/10.1257/jep.8.1.23 DOI: https://doi.org/10.1257/jep.8.1.23
- Gurbiel, R. (2002). Impact of Innovation and Technology Transfer on Economic Growth: The Central and Eastern Europe Experience. 1-18. https://www.eadi.org/typo3/fileadmin/WG_Documents/Reg_WG/gurbiel.pdf
- Hsu, J., & Tiao, Y.-E. (2015, 2015/01). Patent Rights Protection and Foreign Direct Investment in Asian Countries. Economic Modelling, 44, 1-6. https://doi.org/10.1016/j.econmod.2014.08.018 DOI: https://doi.org/10.1016/j.econmod.2014.08.018
- Hu, A. G. Z., & Png, I. P. L. (2013, 2013/03/29). Patent Rights and Economic Growth: Evidence from Cross-Country Panels of Manufacturing Industries. Oxford Economic Papers, 65(3), 675-698. https://doi.org/10.1093/oep/gpt011 DOI: https://doi.org/10.1093/oep/gpt011
- Hudson, J., & Minea, A. (2013, 2013/06). Innovation, Intellectual Property Rights, and Economic Development: A Unified Empirical Investigation. World Development, 46, 66-78. https://doi.org/10.1016/j.worlddev.2013.01.023 DOI: https://doi.org/10.1016/j.worlddev.2013.01.023
- Josheski, D., & Koteski, C. (2011). The Causal Relationship between Patent Growth and Growth of GDP with Quarterly Data in the G7 Countries: Cointegration, ARDL and Error Correction Models. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1921908 DOI: https://doi.org/10.2139/ssrn.1921908
- Krugman, P. R. (1979, 1979/11). Increasing Returns, Monopolistic Competition, and International Trade. Journal of International Economics, 9(4), 469-479. https://doi.org/10.1016/0022-1996(79)90017-5 DOI: https://doi.org/10.1016/0022-1996(79)90017-5
- Lichtenberg, F. R. (1992). R&D Investment and International Productivity Differences. National Bureau of Economic Research Working Paper Series, No. 4161. https://doi.org/10.3386/w4161 DOI: https://doi.org/10.3386/w4161
- Musila, J., & Belassi, W. (2004). The Impact of Education Expenditures on Economic Growth in Uganda: Evidence from Time Series Data. Journal of Developing Areas, 38(1), 123-133. DOI: https://doi.org/10.1353/jda.2005.0015
- Nadiri, M. I. (1993). Innovations and Technological Spillovers. National Bureau of Economic Research Working Paper Series, No. 4423. https://doi.org/10.3386/w4423 DOI: https://doi.org/10.3386/w4423
- Ortiz-Villajos, J. M. (2009). Patents and Economic Growth in the Long Term. A Quantitative Approach. Brussels Economic Review, 52(3/4), 305-340.
- Park, W. G., & Ginarte, J. C. (1997, 1997/07). Intellectual Property Rights and Economic Growth. Contemporary Economic Policy, 15(3), 51-61. https://doi.org/10.1111/j.1465-7287.1997.tb00477.x DOI: https://doi.org/10.1111/j.1465-7287.1997.tb00477.x
- Pece, A. M., Simona, O. E. O., & Salisteanu, F. (2015). Innovation and Economic Growth: An Empirical Analysis for Cee Countries. Procedia Economics and Finance, 26, 461-467. https://doi.org/10.1016/s2212-5671(15)00874-6 DOI: https://doi.org/10.1016/S2212-5671(15)00874-6
- Pessoa, A. (2007). Innovation and Economic Growth: What Is the Actual Importance of R&D? Retrieved Nov 2019, from https://ideas.repec.org/p/por/fepwps/254.html
- Quah, D. (2001). Economic Growth: Measurement. In N. J. Smelser & P. B. Baltes (Eds.), International Encyclopedia of the Social & Behavioral Sciences (pp. 4093-4098). Oxford: Pergamon. https://doi.org/10.1016/B0-08-043076-7/02310-X DOI: https://doi.org/10.1016/B0-08-043076-7/02310-X
- Romer, P. M. (1986). Increasing Returns and Long-Run Growth. Journal of Polictical Economy, 94, 1002-1037. https://doi.org/10.1086/261420 DOI: https://doi.org/10.1086/261420
- Romer, P. M. (1990, 1990/10). Endogenous Technological Change. Journal of political economy, 98(5, Part 2), S71-S102. https://doi.org/10.1086/261725 DOI: https://doi.org/10.1086/261725
- Roodman, D. (2009). How to Do Xtabond2: An Introduction to Difference and System Gmm in Stata. The Stata Journal, 9, 86-136. https://doi.org/10.1177/1536867X0900900106 DOI: https://doi.org/10.1177/1536867X0900900106
- Saad, W., & Kalakech, K. (2009). The Nature of Government Expenditure and Its Impact on Sustainable Economic Growth. Middle Eastern Finance and Economics, 2009(4), 39-47.
- Saini, A. K., & Jain, S. (2011). The Impact of Patent Applications Filed on Sustainable Development of Selected Asian Countries. International Journal of Information Technology (BJIT), 3(2), 358-364.
- Samimi, A. J., & Alerasoul, S. M. (2009). R&D and Economic Growth: New Evidence from Some Developing Countries. Australian Journal of Basic and Applied Sciences, 3(4), 3464-3469.
- Schumpeter, J. A. (1939). Business Cycles: A Theoretical, Historical, and Statistical Analysis of the Capitalist Process. McGraw-Hill Book Company.
- Shukla, S. (2017, 06/07). Innovation and Economic Growth: A Case of India. Humanities & Social Sciences Reviews, 5(2), 64-70. https://doi.org/10.18510/hssr.2017.521 DOI: https://doi.org/10.18510/hssr.2017.521
- Solow, R. M. (1957, 1957/08). Technical Change and the Aggregate Production Function. The Review of Economics and Statistics, 39(3), 312. https://doi.org/10.2307/1926047 DOI: https://doi.org/10.2307/1926047
- Sople, V. V. (2014). Managing Intellectual Property the Strategic Imperative (4th ed.). PHI Learning.
- Ulku, H. (2004). RandD, innovation, and Economic Growth: An Empirical Analysis. IMF Working Papers, 04(185), 1. https://doi.org/10.5089/9781451859447.001 DOI: https://doi.org/10.5089/9781451859447.001
- Zhang, K. H. (2014, 2014/09). How Does Foreign Direct Investment Affect Industrial Competitiveness? Evidence from China. China Economic Review, 30, 530-539. https://doi.org/10.1016/j.chieco.2013.08.003 DOI: https://doi.org/10.1016/j.chieco.2013.08.003
References
Aghion, P., Harmgart, H., & Weisshaar, N. (2010). Fostering Growth in CEE Countries: A Country-tailored Approach to Growth Policy (Vol. Chapter 3). Edward Elgar Publishing. https://doi.org/10.4337/9780857935212.00011 DOI: https://doi.org/10.4337/9780857935212.00011
Barro, R. J., & Xavier, S.-i.-M. (1995). Economic Growth. McGraw-Hill.
Bhattacharyya, P. (2019, 12/04). Public Expenditure on Education and Economic Growth: A State-Level Analysis in India. Humanities & Social Sciences Reviews, 7(6), 533-539. https://doi.org/10.18510/hssr.2019.7683 DOI: https://doi.org/10.18510/hssr.2019.7683
Blundell, R., Bond, S., & Windmeijer, F. (2001). Estimation in Dynamic Panel Data Models: Improving on the Performance of the Standard Gmm Estimator. In H. B. Badi, B. F. Thomas, & R. C. Hill (Eds.), Nonstationary Panels, Panel Cointegration, and Dynamic Panels (Vol. 15, pp. 53-91). Emerald Group Publishing Limited. https://doi.org/10.1016/S0731-9053(00)15003-0 DOI: https://doi.org/10.1016/S0731-9053(00)15003-0
Cullet, P. (2005). Intellectual Property Protection and Sustainable Development. New Delhi: LexisNexis Butterworths.
Daizadeh, I. (2009, 2009/04/16). An Intellectual Property-Based Corporate Strategy: An R&D Spend, Patent, Trademark, Media Communication, and Market Price Innovation Agenda. Scientometrics, 80(3), 731-746. https://doi.org/10.1007/s11192-008-2105-9 DOI: https://doi.org/10.1007/s11192-008-2105-9
Dixit, A., & Stiglitz, J. (1977). Monopolistic Competition and Optimum Product Diversity. American Economic Review, 67(3), 297-308.
Erdal, L., & Göçer, İ. (2015, 2015/07). The Effects of Foreign Direct Investment on R&D and Innovations: Panel Data Analysis for Developing Asian Countries. Procedia - Social and Behavioral Sciences, 195, 749-758. https://doi.org/10.1016/j.sbspro.2015.06.469 DOI: https://doi.org/10.1016/j.sbspro.2015.06.469
Furman, J. L., Porter, M. E., & Stern, S. (2002, 2002/08). The Determinants of National Innovative Capacity. Research Policy, 31(6), 899-933. https://doi.org/10.1016/s0048-7333(01)00152-4 DOI: https://doi.org/10.1016/S0048-7333(01)00152-4
Gans, J. S., & Stern, S. (2003, 2003/02). The Product Market and the Market for “Ideasâ€: Commercialization Strategies for Technology Entrepreneurs. Research Policy, 32(2), 333-350. https://doi.org/10.1016/s0048-7333(02)00103-8 DOI: https://doi.org/10.1016/S0048-7333(02)00103-8
Gittleman, M., & Wolff, E. N. (1995). R&D Activity and Cross-Country Growth Comparisons. Cambridge Journal of Economics, 19(1), 189-207.
Greenhalgh, C., & Longland, M. (2005, 2005/11). Running to Stand Still? – the Value of R&D, Patents and Trade Marks in Innovating Manufacturing Firms. International Journal of the Economics of Business, 12(3), 307-328. https://doi.org/10.1080/13571510500299326 DOI: https://doi.org/10.1080/13571510500299326
Grossman, G. M., & Helpman, E. (1991, 1991/01). Quality Ladders in the Theory of Growth. The Review of Economic Studies, 58(1), 43. https://doi.org/10.2307/2298044 DOI: https://doi.org/10.2307/2298044
Grossman, G. M., & Helpman, E. (1994). Endogenous Innovation in the Theory of Growth. Journal of Economic Perspectives, 8(1), 23-44. https://doi.org/10.1257/jep.8.1.23 DOI: https://doi.org/10.1257/jep.8.1.23
Gurbiel, R. (2002). Impact of Innovation and Technology Transfer on Economic Growth: The Central and Eastern Europe Experience. 1-18. https://www.eadi.org/typo3/fileadmin/WG_Documents/Reg_WG/gurbiel.pdf
Hsu, J., & Tiao, Y.-E. (2015, 2015/01). Patent Rights Protection and Foreign Direct Investment in Asian Countries. Economic Modelling, 44, 1-6. https://doi.org/10.1016/j.econmod.2014.08.018 DOI: https://doi.org/10.1016/j.econmod.2014.08.018
Hu, A. G. Z., & Png, I. P. L. (2013, 2013/03/29). Patent Rights and Economic Growth: Evidence from Cross-Country Panels of Manufacturing Industries. Oxford Economic Papers, 65(3), 675-698. https://doi.org/10.1093/oep/gpt011 DOI: https://doi.org/10.1093/oep/gpt011
Hudson, J., & Minea, A. (2013, 2013/06). Innovation, Intellectual Property Rights, and Economic Development: A Unified Empirical Investigation. World Development, 46, 66-78. https://doi.org/10.1016/j.worlddev.2013.01.023 DOI: https://doi.org/10.1016/j.worlddev.2013.01.023
Josheski, D., & Koteski, C. (2011). The Causal Relationship between Patent Growth and Growth of GDP with Quarterly Data in the G7 Countries: Cointegration, ARDL and Error Correction Models. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1921908 DOI: https://doi.org/10.2139/ssrn.1921908
Krugman, P. R. (1979, 1979/11). Increasing Returns, Monopolistic Competition, and International Trade. Journal of International Economics, 9(4), 469-479. https://doi.org/10.1016/0022-1996(79)90017-5 DOI: https://doi.org/10.1016/0022-1996(79)90017-5
Lichtenberg, F. R. (1992). R&D Investment and International Productivity Differences. National Bureau of Economic Research Working Paper Series, No. 4161. https://doi.org/10.3386/w4161 DOI: https://doi.org/10.3386/w4161
Musila, J., & Belassi, W. (2004). The Impact of Education Expenditures on Economic Growth in Uganda: Evidence from Time Series Data. Journal of Developing Areas, 38(1), 123-133. DOI: https://doi.org/10.1353/jda.2005.0015
Nadiri, M. I. (1993). Innovations and Technological Spillovers. National Bureau of Economic Research Working Paper Series, No. 4423. https://doi.org/10.3386/w4423 DOI: https://doi.org/10.3386/w4423
Ortiz-Villajos, J. M. (2009). Patents and Economic Growth in the Long Term. A Quantitative Approach. Brussels Economic Review, 52(3/4), 305-340.
Park, W. G., & Ginarte, J. C. (1997, 1997/07). Intellectual Property Rights and Economic Growth. Contemporary Economic Policy, 15(3), 51-61. https://doi.org/10.1111/j.1465-7287.1997.tb00477.x DOI: https://doi.org/10.1111/j.1465-7287.1997.tb00477.x
Pece, A. M., Simona, O. E. O., & Salisteanu, F. (2015). Innovation and Economic Growth: An Empirical Analysis for Cee Countries. Procedia Economics and Finance, 26, 461-467. https://doi.org/10.1016/s2212-5671(15)00874-6 DOI: https://doi.org/10.1016/S2212-5671(15)00874-6
Pessoa, A. (2007). Innovation and Economic Growth: What Is the Actual Importance of R&D? Retrieved Nov 2019, from https://ideas.repec.org/p/por/fepwps/254.html
Quah, D. (2001). Economic Growth: Measurement. In N. J. Smelser & P. B. Baltes (Eds.), International Encyclopedia of the Social & Behavioral Sciences (pp. 4093-4098). Oxford: Pergamon. https://doi.org/10.1016/B0-08-043076-7/02310-X DOI: https://doi.org/10.1016/B0-08-043076-7/02310-X
Romer, P. M. (1986). Increasing Returns and Long-Run Growth. Journal of Polictical Economy, 94, 1002-1037. https://doi.org/10.1086/261420 DOI: https://doi.org/10.1086/261420
Romer, P. M. (1990, 1990/10). Endogenous Technological Change. Journal of political economy, 98(5, Part 2), S71-S102. https://doi.org/10.1086/261725 DOI: https://doi.org/10.1086/261725
Roodman, D. (2009). How to Do Xtabond2: An Introduction to Difference and System Gmm in Stata. The Stata Journal, 9, 86-136. https://doi.org/10.1177/1536867X0900900106 DOI: https://doi.org/10.1177/1536867X0900900106
Saad, W., & Kalakech, K. (2009). The Nature of Government Expenditure and Its Impact on Sustainable Economic Growth. Middle Eastern Finance and Economics, 2009(4), 39-47.
Saini, A. K., & Jain, S. (2011). The Impact of Patent Applications Filed on Sustainable Development of Selected Asian Countries. International Journal of Information Technology (BJIT), 3(2), 358-364.
Samimi, A. J., & Alerasoul, S. M. (2009). R&D and Economic Growth: New Evidence from Some Developing Countries. Australian Journal of Basic and Applied Sciences, 3(4), 3464-3469.
Schumpeter, J. A. (1939). Business Cycles: A Theoretical, Historical, and Statistical Analysis of the Capitalist Process. McGraw-Hill Book Company.
Shukla, S. (2017, 06/07). Innovation and Economic Growth: A Case of India. Humanities & Social Sciences Reviews, 5(2), 64-70. https://doi.org/10.18510/hssr.2017.521 DOI: https://doi.org/10.18510/hssr.2017.521
Solow, R. M. (1957, 1957/08). Technical Change and the Aggregate Production Function. The Review of Economics and Statistics, 39(3), 312. https://doi.org/10.2307/1926047 DOI: https://doi.org/10.2307/1926047
Sople, V. V. (2014). Managing Intellectual Property the Strategic Imperative (4th ed.). PHI Learning.
Ulku, H. (2004). RandD, innovation, and Economic Growth: An Empirical Analysis. IMF Working Papers, 04(185), 1. https://doi.org/10.5089/9781451859447.001 DOI: https://doi.org/10.5089/9781451859447.001
Zhang, K. H. (2014, 2014/09). How Does Foreign Direct Investment Affect Industrial Competitiveness? Evidence from China. China Economic Review, 30, 530-539. https://doi.org/10.1016/j.chieco.2013.08.003 DOI: https://doi.org/10.1016/j.chieco.2013.08.003