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Institutional Quality, Bank Finance and Technological Innovation: A way forward for Fourth Industrial Revolution in BRICS Economies

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  • Wang, Chenguang
  • Qiao, Cuixia
  • Ahmed, Rahil Irfan
  • Kirikkaleli, Dervis

Abstract

The introduction of new technologies in the fourth industrial revolution (4IR) has increased the world's income by manifold. In this context, the 4IR poses unprecedented implications for the banking sector. This study investigates the effects of bank finance and institutional quality on technological innovation, in the presence of other important control variables such as high technology exports and the gross domestic product (GDP) for BRICS countries. The results of Westerlund's (2007) cointegration method show that there is a stable long-run relationship among the variables. To estimate the long-run coefficient of the explanatory variables, this study uses the CS-ARDL method. The results show that bank finance, institutional quality, high technology exports, and GDP are positively associated with technological innovation. In terms of the policy implications, this study recommends that for industries to adopt innovative technologies, large scale, illiquid capital investment is a prerequisite. Hence, access to finance should be eased, enabling firms to implement advanced technologies and undertake costly ventures of innovation. Countries with developed institutions protect their citizens' property rights and, therefore, provide a conducive environment where they are free to innovate. Therefore, BRICS countries should focus more on strengthening their institutions, in order to improve their innovation performance.

Suggested Citation

  • Wang, Chenguang & Qiao, Cuixia & Ahmed, Rahil Irfan & Kirikkaleli, Dervis, 2021. "Institutional Quality, Bank Finance and Technological Innovation: A way forward for Fourth Industrial Revolution in BRICS Economies," Technological Forecasting and Social Change, Elsevier, vol. 163(C).
    • Handle: RePEc:eee:tefoso:v:163:y:2021:i:c:s0040162520312531
    DOI: 10.1016/j.techfore.2020.120427
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