The relationship between innovation and economic growth: An econometric analysis on G7 countries

Innovation is defined as the development of new or significantly improved product or processes. The research conducted as part of this thesis focused on G7 countries that have a higher performance than developing countries. In this context, main research question is defined as "the effect of innovation on economic growth in G7 countries". In order to find an appropriate answer to this question, we used the R&D expenditure and patent data of G7 countries between 1981-2013 that are derived from World Bank Database. In order to test the hypothesis, we used LMadj Test, CADF Test, Delta Test, Durbin-Hausman Cointegration Test, CCE and AMG estimators and finally Dumitrescu-Hurlin Panel Causality Test. According to the test results, there is a negative relationship between R&D expenditure and economic growth. On the other hand, a one-way causality from economic growth to patent number. In other words, differences in growth values effect patent numbers. Any causality relationship between other variables couldn't found.