Innovation and Economic Growth: a Cross-country Empirical Analysis

Abstract The paper investigates the relationship between innovation and economic growth in a sample of countries of the world. Innovation is one of the main factors influencing the country's economic growth by reducing production costs, increasing the number of manufactured products and increasing the welfare of the country as a whole. At the beginning of the work, a research question was raised: is it true that countries with high levels of innovative activity demonstrate high rates of economic growth. And 2 hypotheses as well: 1. The more innovation in the country, the higher the level of economic growth. 2. There is a sectoral difference in the impact of innovation on economic growth. The study used regression analysis, in particular, a model with fixed and time effects. As a result of a study on a sample of 152 countries of the world, it was found that there is a positive relationship between the number of innovations and economic growth, and also that innovations in various industries can have different effects on economic growth. However, there are a number of limitations to the study. First, the work does not address the problem of endogeneity. Secondly, innovation proxies have certain disadvantages. Thirdly, when dividing innovation by industry, the problem of multicollinearity is not resolved.