Technological Innovation, Infrastructure and Industrial Growth in Bangladesh: Empirical Evidence from ARDL and Granger Causality Approach

Abstract

In this study, we examined the empirical cointegration, long and short-run dynamics and relationships between technological innovation, infrastructure and industrial growth in Bangladesh over the period of 1974-2016. The ARDL Bounds Test methodology and Granger Causality test in an augmented VECM framework were applied. The ARDL bounds tests and additional cross-checking tests, undoubtedly confirmed long run as well as short-run cointegration between the three variables in Bangladesh. The obtained results expressed that infrastructure has a positive impact on the industrial growth but technological innovation has a negative impact on it in the long run. In the short run, infrastructure and technological innovation both have a positive and significant impact on industrial growth. The VECM Granger causality test reveals the existence of a bi-directional causality running between Industrial growth and infrastructure; and infrastructure and technological innovation. On the other hand, unidirectional causality is running from industrial growth to technological innovation. The findings of the Granger causality test supports the results obtained in the ARDL approach in our study. The results obtained from this empirical analysis have an important policy implication for a developing country like Bangladesh as well as other developing countries. 1. INTRODUCTION The founding partner, Roger McNamee, of the Venture Capital Firm Elevation Partners of US, commented that "We need to stop thinking about infrastructure as an economic stimulant and start thinking about it as a strategy. Economic stimulants produce Bridges to Nowhere. Strategic investment in infrastructure produces a foundation for long-term growth". In the same paper, investigation conducted on "Industry and Infrastructure" of India, it was revealed that vital factors for economic growth and development are to promote inclusive employment-intensive industry and to build resilient infrastructure (Hogan and McNamee, n.d). So there is a close relationship between infrastructure and industrial development or Economic development. All the activities of human being are somehow related to economic development and industrial development is one of the major components of it Rahman and Kashem (2017). From the economic growth point of view, the world has achieved a significant development in different kinds of infrastructure as the roads, railroads, airlines, giant bridges, high rise skyscrapers, tunnels, and industries etc. According to Ayeche et al. (2016) the global economic system has Asian Economic and Financial Review

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“…The author deems human capital as a -valuation of peoples' skills,‖ and reflecting a -person's productive and marketable skills.‖Khodeir (2017) studied determinant factors of technological progress of Arab countries over the period 1995 -2014 by using Microfit Software 5.0 and ARDL Bounds Test. His result confirms the role of intra-trade on productivity performance Fan, Ismail, and Reza (2018). used the ARDL bound test to analyze the innovation, infrastructure, and industrial growth in Bangladesh over the period 1974 to 2016.…”

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“…For Trade Openness, we will apply the sum of Export and Import as % of GDP; for Economic growth, we would utilize GDP per capita (constant 2010 US$); for CO2 emissions, we will take CO2 emissions ( number of patents as a proxy for technological innovation in our research. We have converted all time series data to their natural logarithm form except Trade openness because it is in the percentage (ratio) form (Fan et al, 2018).…”

“…The researcher Pesaran et al (2001) stated this unique type of ECM as the conditional ECM. The terms with ∑ signs demonstrate the error correction dynamics for the short-run and the terms with depicted to the long-run relationships among the variables (Rahman and Kashem, 2017;Fan et al, 2018). The maximum lag lengths , , and would be determined by using one or more of the ‗information criteria' such as AIC, SC, HQ, etc.…”

“…Therefore, we should go for a cross-check of our results. In this research, we would apply the Toda-Yamamoto Granger non-Causality technique to establish the associations and the directions of our variables again (Fan et al, 2018). Toda and Yamamoto (1995) brought in a technique to examine the existence of non-causality irrespective of the variables are I(0), I(1) or I(2), cointegrated or not cointegrated of arbitrary order.…”

“…indicated that financial development and economic growth have a significant positive impact on CO2 emissions, refers, environmental deterioration. In a study,Fan et al (2018) illustrated that Technological innovation has an adverse effect on Industrial growth (proxy of economic growth) in the long-run as well as Infrastructure and technological innovation both have a significant positive impact on Industrial growth in the short-run. In a study ofBalsalobre-Lorente et al (2018) revealed the presence of an N-shaped association between economic growth and CO2 emissions in the EU-5 countries.…”