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Revisiting the effects of innovation on growth: a threshold analysis

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  • M. Aristizabal-Ramirez
  • G. Canavire-Bacarreza
  • F. Rios-Avila

Abstract

Since Schumpeter's (1934) seminal work, the existing literature has examined the relationship between innovation and economic growth, arguing for a strictly positive relationship. The recent literature suggests that this relationship might be non-linear. Low levels of innovation will not affect economic growth; yet, when a certain threshold is reached, innovation significantly promotes economic growth. Using panel data information for 147 countries from 2006 to 2012, we employ threshold regressions à la Hansen (1999) to test the hypothesis of a non-linear relationship between innovation and growth. We find evidence that the relationship between innovation and growth is not linear and that only high levels of innovation increase economic growth. The results tend to be stronger when investment and public expenditure are present, suggesting that the quality of institutions is important.

Suggested Citation

  • M. Aristizabal-Ramirez & G. Canavire-Bacarreza & F. Rios-Avila, 2015. "Revisiting the effects of innovation on growth: a threshold analysis," Applied Economics Letters, Taylor & Francis Journals, vol. 22(18), pages 1474-1479, December.
  • Handle: RePEc:taf:apeclt:v:22:y:2015:i:18:p:1474-1479
    DOI: 10.1080/13504851.2015.1039699
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    References listed on IDEAS

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    1. Gene M. Grossman & Elhanan Helpman, 1994. "Endogenous Innovation in the Theory of Growth," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 23-44, Winter.
    2. Hansen, Bruce E., 1999. "Threshold effects in non-dynamic panels: Estimation, testing, and inference," Journal of Econometrics, Elsevier, vol. 93(2), pages 345-368, December.
    3. LeBel, Phillip, 2008. "The role of creative innovation in economic growth: Some international comparisons," Journal of Asian Economics, Elsevier, vol. 19(4), pages 334-347, August.
    4. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 407-443.
    5. Buesa, Mikel & Heijs, Joost & Baumert, Thomas, 2010. "The determinants of regional innovation in Europe: A combined factorial and regression knowledge production function approach," Research Policy, Elsevier, vol. 39(6), pages 722-735, July.
    6. Laura de Dominicis & Raymond J.G.M. Florax & Henri L.F. de Groot, 2013. "Regional clusters of innovative activity in Europe: are social capital and geographical proximity key determinants?," Applied Economics, Taylor & Francis Journals, vol. 45(17), pages 2325-2335, June.
    7. Costas Azariadis & Allan Drazen, 1990. "Threshold Externalities in Economic Development," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 501-526.
    8. Hasan, Iftekhar & Tucci, Christopher L., 2010. "The innovation-economic growth nexus: Global evidence," Research Policy, Elsevier, vol. 39(10), pages 1264-1276, December.
    9. Acs, Zoltan J. & Anselin, Luc & Varga, Attila, 2002. "Patents and innovation counts as measures of regional production of new knowledge," Research Policy, Elsevier, vol. 31(7), pages 1069-1085, September.
    10. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    Cited by:

    1. Maria Aristizabal-Ramirez & Maria Camila Botero-Franco & Gustavo Canavire-Bacarreza, 2017. "Does Financial Development Promote Innovation in Developing Economies? An Empirical Analysis," Review of Development Economics, Wiley Blackwell, vol. 21(3), pages 475-496, August.

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