Is centralization killing innovation? The success story of technological innovation in fiscally decentralized countries

Abstract

In the past, economic models and empirical evidence have extensively examined the possible determinants of technological innovation. However, researchers did not give much importance to the relationship between fiscal decentralization and technological innovation. Therefore, this study examines the effects of fiscal decentralization on technological innovation, in the presence of economic globalization, public debt, and research & development expenditures (R&DE) for seven decentralized countries of the world, which include Brazil, South Africa, Canada, Germany, Japan, UK, and the USA. In this regard, the Westerlund and Kao cointegration methods' outcomes have provided ample evidence of a long-run equilibrium relationship among the variables associated with technological innovation and its determinants. The results of the common correlated effects mean group (CCEMG) support the hypothesized relationship between fiscal decentralization, and other technological innovation variables that have been taken into consideration. It is evident that an increase in fiscal decentralization, economic globalization, and R&D expenditures tends to improve the sample countries' performance in terms of innovation. On the contrary, public debt is negatively associated with technological innovation. By employing the Dumitrescu Hurlin test, we also found that any policy aims to target fiscal decentralization, R&D expenditures, and public debt significantly changes the advent of technological innovation.