Innovation, Economic Growth, and Inequalities: A Panel Dynamic Threshold Analysis for Dynamic Economies

Abstract

This study reinforces the minimal empirical work on the nonlinear relationship between innovative activities, economic growth, and income distribution. Meanwhile, this study assesses panel data of 40 developing economies from 1996 to 2020, wielding the newly developed threshold model by Seo and Shin (2016). Firstly, the empirical findings hold that there exists a nonlinear relationship between the variables. So, by regressing Innovation on economic growth, this study acquires a threshold value of 0.36% of R&D. Hence, indicating above the threshold value of 0.36, the economic growth will revamp. Secondly, regressing R&D on GINI, this study obtains a threshold value of 0.27% of R&D. So, above the threshold value of 0.25, the income inequality will topple down. In contrast, below the threshold level of Innovation will cause both economic growth and income inequality to exacerbate. All in all, the empirical findings of this study suggest that it is plausible to argue that governments and policymakers in developing economies should lavish more on Innovation because higher innovation activities result in inclusive growth.