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

Year 2020, Volume: 1 Issue: 1, 24 - 30, 22.12.2020

Emre Yiğit

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

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