Innovation, Economic Growth and Macroeconomic Variables: Empirical Evidence from Uganda

Abstract

Over the last decades, effect of innovation on economic growth has received significant attention in the developed world. But little is known about the effect of innovation on economic growth in the context of developing countries (e.g., Uganda) due to lack of data. Examining the relationship between innovation and macroeconomic variables is important because innovation has systematic effects on economic growth and other macroecnomic variables. The paper uses the generalized least squares method to examine the effects of innovation on economic growth and other macroeconomic variables in Uganda in 1970 - 2020 . Data sets were collected from the United Nations database. The paper is based on the neoclassical growth model with decreasing returns to scale since production takes place within the feasible region of production. In addition, examine the effects of innovation on capital, labor, capital productivity, labor productivity, household consumption, investment spending, government spending, exports, imports in Uganda in the given period. Furthermore, the paper examines the influence of other variables on innovation and the individual influence of innovation on those variables. Empirical results show that innovation advancement caused economic growth and growth of other macroeconomic variables in Uganda during the given period. Most of the variables considered had significant feedback effects on innovation. Hence, the paper recommends the application of innovation advancement to a great extent to enhance Uganda’s economic growth, considering its significant long term effects on economic growth in Uganda during the given period.