On the relationship between internet usage and technological innovation: Insight from world panel data

Abstract

The internet can speed up economic growth by promoting innovation, given new endogenous growth theories. This study first provided an empirical analysis of the impact of internet usage on innovation by employing the two-stage least square (2SLS), panel quantile regression (PQR), and pooled ordinary least square (OLS) method of estimation in a panel of 79 economies over 1995 – 2021. The empirical results confirm internet usage's positive and significant impact on technical innovation (measuring internet usage with % of internet users, secure internet servers, and fixed broadband subscriptions). The subsample results show that the influence of internet usage on technical innovation is positive and substantial in OECD, non-OECD, European, and top innovative economies. The study identifies three possible channels through which higher internet usage increases technological innovation among different economies: (i) the level of education, (ii) the degree of financial development, and (iii) the level of investment. Our findings support data policies for R&D, such as tax incentives to encourage specialised digital innovation, skills, and knowledge production and dissemination. Furthermore, proactive policy frameworks should be adopted to promote internet infrastructure for economic inclusion that fosters innovativeness. Therefore, digital technologies redefine invention, stimulate cooperation, and aid in forming innovative ecosystems.