Innovations and international competitiveness: Country-level evidence

Abstract

The paper studies the interaction between innovations and international competitiveness and the main objective is to determine the potential impact of innovations on competitiveness and assess the extent of that impact. Therefore, the paper questions (a) whether innovations cause competitiveness, and (b) to what extent the innovations influence competitiveness. Based on the literature review, the export of goods and the number of patent applications (both per million people) are taken as proxies and chosen as indicators for measuring innovations and international competitiveness. Cross-country panel data analysis is performed for a sample of 67 countries over the period of 1993-2020. The selection of countries was based on the availability of data on all variables. The autoregressive model whose dependent variable is the export of goods and the independent variables are the number of patent applications, foreign direct investments, and the real effective exchange rate is estimated using the Random effect model. The results show that patents have a positive impact on export, though its extent is not so significant. The Granger causality test also confirms that patents cause increased export. The research results hold practical value for policymakers.