Impact of Innovation on Economic Growth of G8 Countries- Analysis Over 1996-2020

Abstract

Purpose: The study aimed to analyze the relationship between innovation and economic growth in the G8 countries over the period 1996-2020. Theoretical framework: The theoretical framework id built upon the neo-classical growth theory, endogenous growth theory, and the innovation systems approach. Design/methodology/approach: The research used the Vector Auto Regression (VAR) model and penal regression, and found evidence of a positive and significant relationship between innovation and economic growth through the results of the Johansen co-integration test. The Granger causality Wald test also indicated that lgdp (GDP) Granger causes irrd (research and development), ipan (patent application), lpar (participation rate), lhte (high-tech exports), lede (educational expenditure), and istj (scientists and engineers), with strong evidence against the null hypothesis. Results: The test results presented in the table provide information on the rank of the co-integrating relationships. The maximum and minimum values of the trace statistics and eigenvalues are reported at each rank, along with the critical values at 5% and 1% significance levels. Granger causes the other time series results suggests that lgdp Granger causes irrd (p-value = 0.034), ipan (p-value = 0.005), lpar (p-value = 0.001), lhte (p-value = 0.029), lede (p-value = 0.000), and istj (p-value = 0.000). The p-value for the overall test (lgdp vs. all) is 0.000, indicating that lgdp Granger causes all the other time series. Findings: The fixed effects regression model showed a significant relationship with an F-statistic of 2.54 and a corresponding p-value of 0.0218. The study provided policy recommendations to support innovation-led economic growth in the G8 countries.