Re-modelling technological innovation and its impact on economic growth in South Africa

Abstract

The 4th Industrial Revolution has nudged global economies to shift towards a more digital environment, to which the global economies have to adapt. However, developing nations have experienced a stagnant growth of technological innovation. One significant culprit behind slow technological innovation is that existing measures of technological innovation fail to fully capture the divergent facets of technological innovations in developing countries such as South Africa. Moreover, it is the diffusion rather than the invention of technologies that determines the trajectory in which technological innovation will reflect on economic growth. Therefore, this study aimed to re-model the measure of technological innovation and assess its impact on economic growth in a developing country context like South Africa. Despite South Africa experiencing a surge in digital penetration, the country still faces the challenge of the digital divide. The digital divide hampers the ability of the larger population to fully participate in and benefit from the opportunities brought forth by the 4th Industrial Revolution, exacerbating inequality, stagnant technological innovations and economic growth. This problem is further compounded by the lack of a comprehensive measure of technological innovation due to measures often focusing on indicators. As a result, the aim of the study was to construct the 4th Industrial Revolution adjusted Technological Innovation Index (IRTII) for measuring technological innovation and to measure its impact on economic growth in South Africa. To attain the primary results of the study, the Principal Components Analysis (PCA) principle was adopted to construct the index, and the Autoregressive Distributed Lag (ARDL) model was modelled to analyse annual time series data from 1992-2022 to measure the impacts of technological variants on GDP growth. The key findings from this research demonstrate that the IRTII has a positive long-run and short-run significant impact on economic growth. The impulse response further highlights that there is a positive statistically significant shock between the IRTII and economic growth. The study concludes that there is a positive link or impact between the constructed index IRTII and economic growth.