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The effect of ICT development on innovation: evidence from G-20 countries


We study the interactions between information and communication technology (ICT) development and innovation in G-20 countries over 1961–2019. We establish whether there is temporal causality between these two variables. Employing the vector error correction modelling (VECM) framework, our findings render a grid of short-run and long-run causal relationships between ICT development and innovation, including long-run unidirectional causality from innovation to ICT development.

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  1. 1.

    It is weighted-average of all these individual innovation indicators.

  2. 2.

    It is weighted-average of all these individual ICT development indicators.

  3. 3.

    0 and 1/2 indicate absence and one/two co-integrating vector(s) between ICT development and innovation, respectively.

  4. 4.

    With the indication of SLH/DFH/FBH/NEH, representing supply-leading/demand-following/feedback/neutrality hypotheses between ICT development and innovation.

  5. 5.

    With the symptom of SLH/DFH/FBH/NEH.

  6. 6.

    With the likes of SLH/DFH/FBH/NEH.


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The authors are grateful to three anonymous reviewers and editor of this journal for helpful comments, which have improved the overall quality of this paper.


Authors did not receive any funding for this work.

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First author (RPP) has contributed to drafting, formulation, review of methods, illustrations, calculations, interpretation of data, conceptual layout of the paper, and editing. Second author (AKS) has done review of methods, conceptual layout of the paper, and editing. Third author (AS) has done review of methods, conceptual layout of the paper, and editing.

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Correspondence to Rudra P. Pradhan.

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Appendix A: Derivation of the composite indices of innovation activities and ICT development, using principal component analysis

Appendix A: Derivation of the composite indices of innovation activities and ICT development, using principal component analysis

The study forms two composite indices for innovation activities and ICT development, henceforth denoted by ‘CII’ and ‘CIC’. This is obtained through principal component analysis (PCA), by means of seven innovation indicators, namely, PAT, TAT, RDE, RDA, TRD, HTE, and STA, and five ICT development indicators, namely, TEL, MOB, INU, INS, and FIB, respectively. The detailed of these variables are listed and defined in the text (see Sect. 2). Three trees are used to have both CII and CIC: (1) organizing data in the identical order to generate an input matrix for the principal components; (2) engaging PCA, eigenvalues, factor loadings, and principal components are resulting; and (3) the principal components are recycled to construct CII and CIC for each country for every year. The comprehensive discussions of these steps to have these indices are available in papers such as Pradhan et al., (2020a, 2020b), and Nair et al. (2020). Tables A.1 and A.2 report the PCA results, while Figs. A.1 and A.2 present the variable loading plots for CII and CIC.

Table A.1 Deriving the innovation activities composite index (CII)
Table A.2 Deriving the ICT development composite index (CIC)
Fig. A.1

Variable loading plots for deriving CII. PAT is patents- both residents and non-residents, TAT is trademarks- both residents and non-residents, RDE is research and development (R&D) expenditure, RDA is researchers in R&D activities, TRD is technicians in R&D activities, HTE is high-technology export, STJ is scientific and technical journal articles

Fig. A.2

Variable loading plots for deriving CIC. TEL is telephone landlines, MOB is mobile phones, INU is internet users, INS is internet servers, FIB is fixed broadband

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Pradhan, R.P., Sarangi, A.K. & Sabat, A. The effect of ICT development on innovation: evidence from G-20 countries. Eurasian Econ Rev (2021).

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  • ICT development
  • Innovation
  • G-20 countries

JEL Classification

  • O38
  • O31
  • O32