Innovation Drivers in Developing Countries

While Romer (Journal of Political Economy,98(5, Part 2), S71-S102,1990) and Weitzman (The Quarterly Journal of Economics,113(2), 331-360,1998) consider the importance of the effect of supply-side factors on innovation, Schmookler (1966) emphasizing the importance of demand-side factors. On the other hand, Acemoglu and Robinson (The American Economic Review,90(2), 126-130,2000) stress the effect of institutional quality on the behavior of elites who could prevent innovation changes. Since these three different theories have different viewpoints about the drivers of innovation, in this study we try to test which one is more important in developing countries. For this purpose, we choose a sample consists of 24 developing countries over the period 2011-2016. Also, we consider entrepreneurship as a demand-side factor and the lagged value of innovation and FDI as supply-side factors. The results show that, while entrepreneurship is statistically insignificant but the lagged value of innovation, FDI and institutional quality have a positive and significant impact on innovation. Also, findings show that the effect of the lagged value of innovation is more than the other factors. Furthermore, based on the viewpoint of Olsson (Journal of Economic Growth,5(3), 253-275,2000), which regards institutional quality as a structural variable, we found that the improvement in institutional quality makes a suitable groundwork for other variables to be effective in innovation activities.