The relationship between knowledge-based economies and economic growth: an empirical analysis on the Asia-Pacific region 2011–2018
| DOI | https://doi.org/10.1108/JCEFTS-09-2021-0052 |
| Published date | 29 March 2022 |
| Date | 29 March 2022 |
| Pages | 171-192 |
| Subject Matter | Economics,International economics |
| Author | Maha Elhini,Yara Mourad |
The relationship between
knowledge-based economies and
economic growth: an empirical
analysis on the Asia-Pacific
region 2011–2018
Maha Elhini
Department of Economics, The British University in Egypt, Cairo, Egypt, and
Yara Mourad
DCarbon Egypt, Cairo, Egypt
Abstract
Purpose –This paper aims to examinethe relationship between knowledge-economyand economic growth
in 16 Asia-Pacific (AP) countriesduring the period 2011–2018. The study also aims to investigate a diversity
of knowledge-economy pillars, including tertiary education, domestic innovation, foreign innovation,
economic incentives and institutional regimeand information and communications technologies (ICTs) and
their relationto economic growth.
Design/methodology/approach –The study applies a comparative empirical analysis using pooled
ordinary least squares(OLS), one-step difference generalised methods of moments(GMM) and bias-corrected
least-squaresdummy variables (LSDVc) estimators to testthis relationship.
Findings –Pooled OLS estimators deemed suboptimal to the panel data under study, while GMM results
reveal a significant relationship be tween tertiary education, dom estic and foreign innovation, g overnment
expenditure and investments with economic growth. Of these results, domestic innovation, investments
and government consu mption are positively correlat ed with economic growth, whereas tertiary education
and foreign innovation show a negative relation. Meanwhile, institutions and ICT have insignificant
relationships with economic growth. LSDVc results coincide with GMM results with respect to tertiary
education, whereas i nstitutions is the only additional si gnificant and negatively correlated variable with
economic growth.
Research limitations/implications –The main limitation of this researchlies in the unavailability of
proxy data for knowledgeeconomy pillars in monetary terms, and hence, the paper relieson indices.
Originality/value –The novelty of the study lies in its aim to investigate economic growth in the AP
region that is enhanced by domestic innovation, foreign innovation or both –an area which is empirically
understudied in the knowledge-economy context. Further, the paper’s novelty lies in its application of a
comparative empirical analysis between the most popular dynamic panel estimators –dynamic GMM and
bias-correctedLSDVc for AP countries.
Keywords Asia-Pacific, Knowledge-based economy, Economic growth, Pooled OLS,
Dynamic GMM, LSDVc
Paper type Research paper
1. Introduction
The internationalisation of theproduction process is constantly creating new opportunities
and incentives for emerging economies to grow and compete. This process, however,
imposes new pressures for knowledge acquisition along with rising incentives for the
Knowledge-
based economies
and economic
growth
171
Journalof Chinese Economic and
ForeignTrade Studies
Vol.15 No. 2, 2022
pp. 171-192
© Emerald Publishing Limited
1754-4408
DOI 10.1108/JCEFTS-09-2021-0052
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exchange of mutually reinforcing innovation. In this light, the emerging economic
environment has become different from any time experienced in the past, as knowledge-
based economy (KBE) is intensifying rapidly, aggravated by innovation and technological
change. Similarly, the success of the Asia-Pacific (AP) countries has inevitably become
highly dependent on their transition to a KBE and less on rudiments that underpinned its
growth in the past.
Over the past three decades, the AP region has witnessed substantial economic growth
based on major transformations from an agriculture-dependent, low-income region in the
1960s, to a chief manufacturing hub andexporter worldwide. Expanding consumer markets
and manufacturing pumped by foreign direct investments and rapid industrialisation
helped establish the region as a global manufacturing powerhouse, including four of the
world’s top ten manufacturers –China, Japan,South Korea and India (PwC, 2020), allowing
the region to represent 40% of global manufacturing value-added in 2019. Technology
advancement has played key roles in this growth, resulting in AP currently accounting for
one-third of globalmerchandise-trade. Nevertheless, for the regionto sustain further growth,
it requires shiftingparadigms that differ in pace and size from incrementalchanges to which
other economies weresubject in the past.
A KBE is an economy in which knowledgeis the primary resource, and where innovative
ideas constitute the main competitive advantage (Drucker, 1959). Knowledge-based
economies’growth is dependent on the quantity, quality, accessibility and usefulness of
creativity and information, rather than material means of production. It is an economy
characterised by sustainable growth rather than led by traditional resources such as land,
labour and capital (Filipovic et al.,2012). Abundant in intellectual capital, technological
skills and innovative capabilities, a KBE is considered the main driver of growth-
differentialsand narrowing technological gaps across countries.
Knowledge, however, is not an isolated or limited activity, and knowledge economy
determinants, including tertiary education, domestic innovation, institutions and
information and communicationstechnology (ICT), are believed to be important factorsthat
can be transferred to AP countriesfrom more developed ones. In this light, it is important to
investigate which knowledge-economypillars are key to the economic growth process of the
AP region. Hence, this study gauges the relationship between knowledge-economy pillars
and economic growth in 16 AP countries, using pooled OLS, one-step difference-GMM
Arellano and Bond estimators and bias-corrected LSDVc estimators for the period 2011–
2018 [1]. To the best of the authors’knowledge, the novelty of this research lies in its
utilisation of KE indices to examine the relationship between KBE pillars and economic
growth. Secondly, the research’s novelty also lies in the application of a comparative
empirical approach for AP countries. Thirdly, this research focuses on a comprehensive
analysis of all KE pillars, whereas earlier studies focused on investigating the relation
between individual KE pillars and economic growth, focusing on aggregate knowledge or
the knowledge economy index. Fourth, this paper fills a gap in the literature by including
foreign direct investment (FDI) and technology-transfer index (FDI) as proxy for foreign
innovation. By that, it analyseswhether growth in AP countries is triggered by domestic or
foreign determinants.
The study aims to examine the relationship between foreign innovation measured by
technology transfersfrom FDI and economic growth in the AP region, incorporating the role
of both domestic R&D and FDI in knowledge creation. GDP per capita growth rate is
regressed over the following KBE variables:gross fixed-capital formation, government final
consumption as percentage of GDP, tertiary-education enrolment index, research and
development index, institutions index, internet users and technology transfer index.Pooled
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