Innovation capacity, business sophistication and macroeconomic stability: empirical evidence from OECD countries
Abstract
The main aim of this study is to explore the linkages between innovation capacity, business sophistication, and macroeconomic stability within OECD countries. In order to obtain information regarding the relationship between time series variables, the Pedroni cointegration, Kao cointegration, fully modified ordinary least square, dynamic ordinary least square, Granger causality, and Dumitrescu Hurlin causality tests are employed. The empirical results reveal that improvement in business sophistication triggers innovation capacity and support macroeconomic stability. Innovation capacity would also need to be expanded in the long-run, which positively leads to advanced business sophistication that has a cyclical effect. If policymakers intend to accelerate business sophistication, then their attention should be directed towards maximizing the economic indicators in the long-run. To the best of our knowledge, the linkage between innovation capacity, business sophistication and macroeconomic stability in OECD countries has not been comprehensively explored through the use of a single dataset. Thus, the findings of this study could lead to a new debate regarding the concept.
Keyword : business sophistication, innovation, macroeconomic stability, OECD countries, panel data modelling, panel causality
How to Cite
Kirikkaleli, D., & Ozun, A. (2019). Innovation capacity, business sophistication and macroeconomic stability: empirical evidence from OECD countries. Journal of Business Economics and Management, 20(2), 351-367. https://doi.org/10.3846/jbem.2019.9602
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115(1), 53-74. https://doi.org/10.1016/S0304-4076(03)00092-7
Kacprzyk, A., & Doryń, W. (2017). Innovation and economic growth in old and new member states of the European Union. Economic Research – Ekonomska istraživanja, 30(1), 1724-1742. https://doi.org/10.1080/1331677X.2017.1383176
Kao, C. (1999). Spurious regression and residual-based tests for cointegration in panel data. Journal of Econometrics, 90(1), 1-44. https://doi.org/10.1016/S0304-4076(98)00023-2
Lafley, A. G., & Charan, R. (2008). The game-changer: How you can drive revenue and profit growth with innovation. Crown Business.
Levin, A., Lin, C. F., & Chu, C. S. J. (2002). Unit root tests in panel data: asymptotic and finite-sample properties. Journal of Econometrics, 108(1), 1-24. https://doi.org/10.1016/S0304-4076(01)00098-7
Li, D., Chen, J., & Gao, J. (2011). Non‐parametric time‐varying coefficient panel data models with fixed effects. The Econometrics Journal, 14(3), 387-408. https://doi.org/10.1111/j.1368-423X.2011.00350.x
Maddala, G. S., & Wu, S. (1999). A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and Statistics, 61(S1), 631-652. https://doi.org/10.1111/1468-0084.0610s1631
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Maradana, R. P., Pradhan, R. P., Dash, S., Gaurav, K., Jayakumar, M., & Chatterjee, D. (2017). Does innovation promote economic growth? Evidence from European countries. Journal of Innovation and Entrepreneurship, 6(1), 1. https://doi.org/10.1186/s13731-016-0061-9
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Pedroni, P. (2001). Fully modified OLS for heterogeneous cointegrated panels. In Nonstationary panels, panel cointegration, and dynamic panels (pp. 93-130). Emerald Group Publishing Limited.
Pradhan, R. P., Arvin, M. B., Hall, J. H., & Nair, M. (2016). Innovation, financial development and economic growth in Eurozone countries. Applied Economics Letters, 23(16), 1141-1144. https://doi.org/10.1080/13504851.2016.1139668
Rocha, E. A. G. (2012). The impact of the business environment on the size of the micro, small and medium enterprise sector; preliminary findings from a cross-country comparison. Procedia Economics and Finance, 4, 335-349. https://doi.org/10.1016/S2212-5671(12)00348-6
Romer, P. M. (1994). The origins of endogenous growth. Journal of Economic Perspectives, 8(1), 3-22. https://doi.org/10.1257/jep.8.1.3
Sahoo, S., & Yadav, S. (2017). Entrepreneurial orientation of SMEs, total quality management and firm performance. Journal of Manufacturing Technology Management, 28(7), 892-912. https://doi.org/10.1108/JMTM-04-2017-0064
Schumpeter, J. A. (1934). Change and the Entrepreneur. Essays of JA Schumpeter. Routledge.
Solow, R. M. (1956). A contribution to the theory of economic growth. The Quarterly Journal of Economics, 70(1), 65-94. https://doi.org/10.2307/1884513
Swan, T. W. (1956). Economic growth and capital accumulation. Economic Record, 32(2), 334-361. https://doi.org/10.1111/j.1475-4932.1956.tb00434.x
Takalo, T., Tanayama, T., & Toivanen, O. (2013). Estimating the benefits of targeted R&D subsidies. Review of Economics and Statistics, 95(1), 255-272. https://doi.org/10.1162/REST_a_00280
Tomaszewski, M., & Świadek, A. (2017). The impact of the economic conditions on the innovation activity of the companies from selected Balkan states. Economic Research – Ekonomska istraživanja, 30(1), 1896-1913. https://doi.org/10.1080/1331677X.2017.1398099
Tsuji, M., Ueki, Y., Shigeno, H., Idota, H., & Bunno, T. (2018). R&D and non-R&D in the innovation process among firms in ASEAN countries: Based on firm-level survey data. European Journal of Management and Business Economics, 27(2), 198-214. https://doi.org/10.1186/s13731-016-0061-9
Archibugi, D., Filippetti, A., & Frenz, M. (2013). Economic crisis and innovation: Is destruction prevailing over accumulation?. Research Policy, 42(2), 303-314. https://doi.org/10.1016/j.respol.2012.07.002
Bae, S. H., & Yoo, K. (2015). Economic modeling of innovation in the creative industries and its implications. Technological Forecasting and Social Change, 96, 101-110. https://doi.org/10.1016/j.techfore.2015.02.010
Barrett, C. W., Musso, C. S., & Padhi, A. (2009). Upgrading R&D in a downturn. The McKinsey Quarterly, 2(February), 1-3.
Bishop, K., & Robinson, C. (2008). Business growth and innovation: The wider impact of rapidly-growing firms in UK city-regions (No. 2476). National Institute of Economic and Social Research.
Braunerhjelm, P., Ding, D., & Thulin, P. (2018). The knowledge spillover theory of intrapreneurship. Small Business Economics, 51(1), 1-30. https://doi.org/10.1007/s11187-017-9928-9
Carlsson, M., Lyhagen, J., & Österholm, P. (2007). Testing for purchasing power parity in cointegrated panels (No. 7-287). International Monetary Fund.
Choi, I. (2001). Unit root tests for panel data. Journal of International Money and Finance, 20(2), 249-272. https://doi.org/10.1016/S0261-5606(00)00048-6
Ciocanel, A. B., & Pavelescu, F. M. (2015). Innovation and competitiveness in European context. Procedia Economics and Finance, 32, 728-737. https://doi.org/10.1016/S2212-5671(15)01455-0
Coad, A. (2009). The growth of firms: A survey of theories and empirical evidence. Edward Elgar Publishing. https://doi.org/10.4337/9781848449107
Coenen, L., & López, F. J. D. (2010). Comparing systems approaches to innovation and technological change for sustainable and competitive economies: an explorative study into conceptual commonalities, differences and complementarities. Journal of Cleaner Production, 18(12), 1149-1160. https://doi.org/10.1016/j.jclepro.2010.04.003
Czarnitzki, D., & Hottenrott, H. (2009). Are local milieus the key to innovation performance?. Journal of Regional Science, 49(1), 81-112. https://doi.org/10.1111/j.1467-9787.2008.00584.x
Diebolt, C., & Hippe, R. (2018). The long-run impact of human capital on innovation and economic development in the regions of Europe. Applied Economics, 1-22. https://doi.org/10.1080/00036846.2018.1495820
Dima, A. M., Begu, L., Vasilescu, M. D., & Maassen, M. A. (2018). The relationship between the knowledge economy and global competitiveness in the European Union. Sustainability, 10(6), 1706. https://doi.org/10.3390/su10061706
Dooley, L., & O’Sullivan, D. (2001). Structuring innovation: A conceptual model and implementation methodology. Enterprise and Innovation Management Studies, 2(3), 177-194. https://doi.org/10.1080/14632440110101246
Dumitrescu, E. I., & Hurlin, C. (2012). Testing for Granger non-causality in heterogeneous panels. Economic Modelling, 29(4), 1450-1460. https://doi.org/10.1016/j.econmod.2012.02.014
Galindo, M. Á., & Méndez, M. T. (2014). Entrepreneurship, economic growth, and innovation: Are feedback effects at work?. Journal of Business Research, 67(5), 825-829. https://doi.org/10.1016/j.jbusres.2013.11.052
Geroski, P. A., & Machin, S. (1993). Innovation, profitability and growth over the business cycle. Empirica, 20(1), 35-50. https://doi.org/10.1007/BF01384139
Geroski, P. A., Machin, S. J., & Walters, C. F. (1997). Corporate growth and profitability. The Journal of Industrial Economics, 45(2), 171-189. https://doi.org/10.1111/1467-6451.00042
Geroski, P. A., & Toker, S. (1996). The turnover of market leaders in UK manufacturing industry, 1979-86. International Journal of Industrial Organization, 14(2), 141-158. https://doi.org/10.1016/0167-7187(95)00479-3
Hekkert, M. P., Suurs, R. A., Negro, S. O., Kuhlmann, S., & Smits, R. E. (2007). Functions of innovation systems: A new approach for analysing technological change. Technological Forecasting and Social Change, 74(4), 413-432. https://doi.org/10.1016/j.techfore.2006.03.002
Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115(1), 53-74. https://doi.org/10.1016/S0304-4076(03)00092-7
Kacprzyk, A., & Doryń, W. (2017). Innovation and economic growth in old and new member states of the European Union. Economic Research – Ekonomska istraživanja, 30(1), 1724-1742. https://doi.org/10.1080/1331677X.2017.1383176
Kao, C. (1999). Spurious regression and residual-based tests for cointegration in panel data. Journal of Econometrics, 90(1), 1-44. https://doi.org/10.1016/S0304-4076(98)00023-2
Lafley, A. G., & Charan, R. (2008). The game-changer: How you can drive revenue and profit growth with innovation. Crown Business.
Levin, A., Lin, C. F., & Chu, C. S. J. (2002). Unit root tests in panel data: asymptotic and finite-sample properties. Journal of Econometrics, 108(1), 1-24. https://doi.org/10.1016/S0304-4076(01)00098-7
Li, D., Chen, J., & Gao, J. (2011). Non‐parametric time‐varying coefficient panel data models with fixed effects. The Econometrics Journal, 14(3), 387-408. https://doi.org/10.1111/j.1368-423X.2011.00350.x
Maddala, G. S., & Wu, S. (1999). A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and Statistics, 61(S1), 631-652. https://doi.org/10.1111/1468-0084.0610s1631
Malecki, E. J. (2018). Entrepreneurs, networks, and economic development: A review of recent research. In Reflections and extensions on key papers of the first twenty-five years of advances (pp. 71-116). Emerald Publishing Limited. https://doi.org/10.1108/S1074-754020180000020010
Maradana, R. P., Pradhan, R. P., Dash, S., Gaurav, K., Jayakumar, M., & Chatterjee, D. (2017). Does innovation promote economic growth? Evidence from European countries. Journal of Innovation and Entrepreneurship, 6(1), 1. https://doi.org/10.1186/s13731-016-0061-9
OECD. (2005). Oslo Manual: Guidelines for collecting and interpreting innovation data. Paris. Pece, A. M., Simona, O. E. O., & Salisteanu, F. (2015). Innovation and economic growth: An empirical analysis for CEE countries. Procedia Economics and Finance, 26, 461-467. https://doi.org/10.1016/S2212-5671(15)00874-6
Pedroni, P. (2001). Fully modified OLS for heterogeneous cointegrated panels. In Nonstationary panels, panel cointegration, and dynamic panels (pp. 93-130). Emerald Group Publishing Limited.
Pradhan, R. P., Arvin, M. B., Hall, J. H., & Nair, M. (2016). Innovation, financial development and economic growth in Eurozone countries. Applied Economics Letters, 23(16), 1141-1144. https://doi.org/10.1080/13504851.2016.1139668
Rocha, E. A. G. (2012). The impact of the business environment on the size of the micro, small and medium enterprise sector; preliminary findings from a cross-country comparison. Procedia Economics and Finance, 4, 335-349. https://doi.org/10.1016/S2212-5671(12)00348-6
Romer, P. M. (1994). The origins of endogenous growth. Journal of Economic Perspectives, 8(1), 3-22. https://doi.org/10.1257/jep.8.1.3
Sahoo, S., & Yadav, S. (2017). Entrepreneurial orientation of SMEs, total quality management and firm performance. Journal of Manufacturing Technology Management, 28(7), 892-912. https://doi.org/10.1108/JMTM-04-2017-0064
Schumpeter, J. A. (1934). Change and the Entrepreneur. Essays of JA Schumpeter. Routledge.
Solow, R. M. (1956). A contribution to the theory of economic growth. The Quarterly Journal of Economics, 70(1), 65-94. https://doi.org/10.2307/1884513
Swan, T. W. (1956). Economic growth and capital accumulation. Economic Record, 32(2), 334-361. https://doi.org/10.1111/j.1475-4932.1956.tb00434.x
Takalo, T., Tanayama, T., & Toivanen, O. (2013). Estimating the benefits of targeted R&D subsidies. Review of Economics and Statistics, 95(1), 255-272. https://doi.org/10.1162/REST_a_00280
Tomaszewski, M., & Świadek, A. (2017). The impact of the economic conditions on the innovation activity of the companies from selected Balkan states. Economic Research – Ekonomska istraživanja, 30(1), 1896-1913. https://doi.org/10.1080/1331677X.2017.1398099
Tsuji, M., Ueki, Y., Shigeno, H., Idota, H., & Bunno, T. (2018). R&D and non-R&D in the innovation process among firms in ASEAN countries: Based on firm-level survey data. European Journal of Management and Business Economics, 27(2), 198-214. https://doi.org/10.1186/s13731-016-0061-9