Innovative Infrastructure, Financial Development and Innovative Activity in Developing Economies: Cross Country Empirical Investigation

Over the last decades, technological advances have been the most important determinant of growth rate for many countries. Recent studies have been focused on explaining growth rates of countries through endogenous technological change. However there is limited number of papers aimed to explain innovative activity in developing countries. The purpose of the paper is to test the impact of banking sector and innovative infrastructure (patent protection and industrial clusterization) on innovative activity of developing economies. This paper provides empirical evidence on effects of banking system development and innovation infrastructure on innovative activity based on the sample of 51 developing economies. For example, an improvement in innovative cluster development and increase domestic credit to private sector of Russia from existing level (catching up countries) to the level of Brazil (foregoing ahead), is associated with 4.8 percent increase in high tech exports, ceteris paribus. Most of the variables in our paper are public policy variables (quality of banking system, sophistication of innovative infrastructure). Our empirical discoveries ought to be of high interest to policy makers in developing economies intended to achieve sustained economic growth through technical and technological advance.