The Effect of Innovation and Foreign Trade on Economic Growth in Selected Countries: Panel Causality Test

Abstract

Countries competing with each other in the Globalizing World are using innovative activities to expand their economies. Innovations emerging in the markets stimulate competition and increase the total output level. The next aim of the countries that achieve the targeted economic growth will be to increase the welfare of the society. For this purpose, they developed foreign trade relations to increase income. With the impact of globalization, the transfer of information and technology from one country to another is easy, economic integrations are gaining momentum, and the conveniences experienced in logistics and payment transactions increase the foreign trade volume of the countries. The important thing here is that the innovation process does not negatively affect the marginal technical substitution rate in the economy. If the technological development increasing as a result of innovation activities affects the production process positively, leaving people unemployed due to machining, this will lead to a loss of welfare through the economy. Therefore, the effects of innovation and foreign trade on economic growth need to be investigated well. For this purpose the study year of 2000-2017 annual data with Turkey, Brazil, Russia and India on Emirmahmutoğlu and Kose (2011) developed by the panel causality test was applied. As a result of the analysis, while a one-way causality relationship from innovation to economic growth at 1% significance level in Brazil and India is determined; In Turkey and Russia, a one-way causality from economic growth to foreign trade is determined. The findings show that innovation is an important factor in the sustainability of economic growth. Taking policy decisions by taking into account this situation will increase the level of welfare of the economy.

Keywords

• Innovation
• Foreign Trade
• Economic Growth
• Panel Causality

References

1. Alegre, J. Chiva, R., & Lapiedra, R. (2005). A literature-based innovation output analysis: Implications for innovation capacity. International Journal of Innovation Management, 9(4), 385–399.
2. Altunışık, R., Özdemir, Ş. & Torlak Ö. (2016). Marketing principles and management (2nd Edition). Beta Publications.
3. Bozkurt, C. (2015). R&D expenditures and economic growth relationship in Turkey. International Journal of Economics and Financial Issues, 5(1), 188-198.
4. Canbay, Ş. (2020). Research and development in Turkey (R&D) effects on exports of spending. Dumlupınar University Journal of Social Sciences, 63, 131-140.
5. Chawla, D. (2020). Economic growth and R&D expenditures in selected OECD countries: Is there any convergence?. African Journal of Science, Technology, Innovation and Development, 12(1), 13-25.
6. Emirmahmutoglu, F., & Kose, N. (2011). Testing for granger causality in heterogeneous mixed panels. Economic Modelling, 28(3), 870-876.
7. Freire-Serén, J. M. (1999). Aggregate R&D expenditure and endogenous economic growth. UFAE and IAE Working Papers.
8. Genç, M. C., & Tandoğan, D. (2020). Impact on economic growth of R&D in Turkey: Ruins fourier approach based cointegration test. Manisa Celal Bayar University Journal of Social Sciences, 18(2), 339-348.

9. Goel, R. K., & Ram, R. (1994). Research and development expenditures and economic growth: A cross-country study. Economic Development and Cultural Change, 42(2), 403-411.
10. Grossman, G. M., & Helpman, E. (1991). Innovation and growth in the global economy. MIT press.
11. Guellec, D. & Potterie, B. P. (2001), “R&D and productivity growth: Panel data analysis of 16 OECD countries”. OECD Economic Studies, 33(2), 103-126.
12. Güleş, H. K., & Bülbül, H. (2004). Innovation: Strategic competition tool for businesses. Nobel Publishing.
13. Jones, C. I. (2013). Introduction to economic growth. WW Norton&Company.
14. Korkmaz, S. (2010). Research and development investments in turkey and the relationshıp examined between economic development with var model. Journal of Yasar University, 20(5), 3320-3330.
15. Kurt, T. (2010). The effects of organizational culture on innovation performance: An application in manufacturing sector in Kayseri (Publication No. 262226). [Master thesis, Erciyes Üniversitesi]. YÖKTEZ.
16. Lichtenberg, Frank. R. (1993). R&D investment and international productivity differences (NBER Working Paper Series Working Paper No: 4161). National Bureau of Economic Research, Inc.
17. Nasab, E. H., & Aghaei, M. (2009). The effect of ICT on economic growth: Further evidence. International Bulletin of Business Administration, 5, 46-56.
18. OECD & EUROSTAT (2005). Oslo guidelines principles for collection and interpretation of innovation data (3rd Edition). TUBITAK.
19. Özkan, G., & Bayar, İ. (2019). The effect of R&D expenditures, export of information and communication technologies goods and patent numbers on economic growth in emerging economies: Panel data analysis (2000-2015). Mehmet Akif Ersoy University Journal of Social Sciences Institute, 11(27), 149- 169.
20. Pesaran, H. M. (2004). General diagnostic tests for cross-sectional dependence in panels. University of Cambridge, Cambridge Working Papers in Economics, 435.
21. Romer, P. M. (1986). Increasing returns and long-run growth. The Journal of Political Economy, 94(5), 1002-1037.
22. Romer, P. (1990). Endogenous technological change. The Journal of Political Economy, 98(5),71-102.
23. Şimşek T., & Destebaşı, E. (2020). The relationship between global economic integration, human capital investments and corruption in Turkic States. Third Sector Social Economic Review, 55(2), 808-827.
24. Szarowska, I. (2017). Does public R&D expenditure matter for economic growth? GMM approach, Journal of International Studies, 10(2), 90-103.
25. Ülkü, H. (2004). R&D, innovation and economic growth: An empirical analysis. IMF Working Paper No:04/185.
26. Yapraklı, S., & Sağlam, T. (2010). Information communication technology in Turkey and economic growth: An econometric analysis (1980-2008). Ege Academic Review, 10(2), 575-596.
27. Yazgan, Ş., & Yalçınkaya, Ö. (2018). The effects of research and development (R&D) investments on sustainable economic growth: Evidence from OECD countries (1996-2015). Review of Economic Perspectives, 18(1), 3-23.