Does Finance Matter for Innovation Led Growth? A South Asian Investigation
Abstract
Finance works as a frontier for the technological convergence and R&D activities that helps expedite the adaptation of new products and services which triggers the gales of innovations and hence leads towards innovation led growth. This research, thus, examines the moderating role of innovation in the finance-growth nexus in South Asia. To achieve this objective, a “balanced panel dataset” has been used for South Asian countries (Pakistan, Sri-Lanka, Nepal and India) for 1996-2018. The study considers financial depth, financial development and financial openness as predictors. Economic growth and innovation are utilized as outcome and moderating variables, respectively. The study applies dynamic ordinary least square to estimate the empirical results. Findings show significant positive impact of financial development and financial depth on economic growth. Whereas, financial openness shows insignificant impact on economic growth which becomes significant in the presence of innovation as a moderator. Innovation plays an enhancing role in the relations among financial development, financial depth, financial openness and economic growth. The findings suggest that the government of South Asia should increase R&D spending and issue more patents to promote innovation activities that lead towards innovation-led growth. The study recommends increasing investment in innovation by empowering financial institutions and organizations.
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