Toward the Fourth Industrial Revolution among E7 Economies: Assessment of the Combined Impact of Institutional Quality, Bank Funding, and Foreign Direct Investment.

Abstract

Technological innovation and its paradigm, that is, the Fourth Industrial Revolution-4IR, have shown strong impact on income levels of adopters across the globe. To this end, this analysis examines the impact of bank funding and institutional quality on technological advancement. This study adds additional variables such as high-technology exports and foreign direct investment (FDI) as control variable. Our study period spans from 2000 to 2018 on an annual frequency for E7 economies (Brazil, Indonesia, Mexico, India, Turkey, Russia, and China). This study leverages on cross-sectional ARDL, Augmented Mean Group (AMG), and Common Correlated Effects Mean Group Estimates (CCEMG) estimation techniques to examine long-run relationship between the outlined variables. Empirical findings show that institution quality, bank finance, income, high-technology exports, and foreign direct investments exert a positive effect on advancements in technology. Furthermore, the interaction between bank finance and institution quality on technological advancement is also positive and statistically significant. Based on the findings, it is concluded that large-scale funding is crucial for businesses to leverage revolutionary technology. Likewise, access to large capital sources if made easier encourages technology affordance as well as innovation and operational excellence. Thus, economies with established legal and financial systems stand to offer businesses such security, which encourages business innovation. Consequently, E7 economies ought to improve their financial and legal systems to boost financial security, creativity, and competitiveness of businesses.