The Impact of Financial Development on Innovation

Being a driver of technological innovation and an indicator of economic growth, the theme of financial development is studied widely, arguing that a well-developed financial system mobilizes capital for growth. However, the literature on the subject issue is limited to panel data studies. Also, results vary across countries having different economic and financial structures. Therefore, this thesis is aimed to empirically examine the relationship between financial sector development and innovation patent application in Bangladesh over the period 1980-2018. The thesis used auto- regressive distributive (ARDL) lag to quantify the subject relationship, with the number of innovation patent applications as the dependent variable that measures the country's innovation performance. Results of ARDL indicate that financial sector development indicators both banking and non-banking have a positive relationship with the number of innovation patent applications in Bangladesh in the long run. However, this thesis found that secondary level education is not contributing to innovation. Therefore, the country should focus on their higher education and technical education and build an effective regulatory capital framework that can help resolve market failure and strengthen the whole financial infrastructure and innovation practices in the country as a result. Keywords: financial development, inovasyon patent başvurusu, ARDL.