Innovation and economic growth in European Economic Area countries: The Granger causality approach

Abstract

The paper examines the long-run relationship between innovation and economic growth in the European Economic Area (EEA) countries for the period 1989–2014. Using vector auto-regressive model for testing the Granger causalities, the study finds the presence of both unidirectional and bidirectional causality between innovation and economic growth. These results vary from country to country, depending upon the types of innovation indicators that are used in the empirical investigation process. The policy implication of this study is that economic policies should recognise the differences in innovation and economic growth in order to maintain sustainable development in EEA countries. Keywords: Innovation, Per capita economic growth, Granger causality, EEA countries