Trade Openness and Public Innovation: A Causality Analysis

Abstract

The comparative advantage theory perspective has been extended to the public innovation and trade openness of OECD and Non-OECD countries by focusing on the role of tariff and asymmetric effect of trade openness by comparing imports and exports growth with the causal relationship among the respective factors. The study’s findings indicate that trade openness, innovation, and tariffs are linked in developing countries more than in developed countries due to the difference in economic perspectives and policies, which disprove the idea of the tariff being ineffective for developed nations. The causality effectiveness in developed and underdeveloped countries has resulted among public innovation toward openness of trade and tariff but not in case of tariff to trade openness. Additionally, the results hold up to sub-indicators and measures of public innovation, evaluating that input sub-index is more impactful than output sub-index, and both are even stronger in developing countries than developed countries. Finally, this study implied the usefulness of monetary policy to encourage the governments to lower import tariffs, paved the way to increased investment in research and development and collaboration between foundations, businesses, and academia. JEL Classification: H7, H8, O31, C26