impactsofvoiceandaccountabilityuponinnovationinpakistan ... · (control of corruption, political...

Research ArticleImpacts of Voice andAccountability upon Innovation in PakistanEvidence from ARDL and Maki Cointegration Approaches

Muhammad Athar Nadeem1 Zhilun Jiao 2 Kishwar Nawaz3 and Amna Younis4

1School of Management University of Science and Technology of China Hefei Anhui China2College of Economic and Social Development Nankai University Tianjin China3Department of Economics University of Orleans Orleans France4School of Public Affairs University of Science and Technology of China Hefei Anhui China

Correspondence should be addressed to Zhilun Jiao zjiaonankaieducn

Received 7 December 2019 Revised 15 June 2020 Accepted 30 June 2020 Published 28 July 2020

Academic Editor Antonio M Lopes

Copyright copy 2020 Muhammad Athar Nadeem et al is is an open access article distributed under the Creative CommonsAttribution License which permits unrestricted use distribution and reproduction in anymedium provided the original work isproperly cited

Innovative capacity has a decisive and crucial role in determining who is prospering in the global arena Innovation is crucial forvalue creation high productivity economic growth employment and sustainable development that benefit the consumers firmsbusinesses and economy as a whole Several institutional political and social conditions lead to different responses of innovationFor instance low voice and accountability may lead to low institutional setting cronyism and favoritism in allocation of re-sources which can harm innovation Similarly the terrorist attack of 911 caused horrific scales of destructions which caught thecountries on various fronts such as economic political and technological Further sound infrastructure and savings rates areessential to enhance innovation Applying the ARDL approach to cointegration this study investigates the impact of voice andaccountability terrorism infrastructure and savings on innovation in Pakistan e empirical evidence shows that low voice andaccountability and terrorism have adverse impacts on innovation in the short- and long-run periods Further findings reveal thatinadequate infrastructures and low savings adversely affect the innovation in both periods Various robust checks such as Makicointegration Johansen cointegration test fully modified ordinary least square dynamic ordinary least square and canonicalcointegration regression corroborate the results e findings of the study would be of substantial implications for governmentand policymakers

1 Introduction

Innovation is a crucial driver of sustainability is widelyaccepted by government representatives industry profes-sionals and scholars [1] Sustainable Development Goals(SDG-9) of the United Nations highlight the importance ofinnovation and reports that economic growth and devel-opment of a nation largely depend on innovation [2] In-novation is essential for sound economic growth andsustainable development that benefit the consumers firmsbusinesses and the economy as a whole [1 3] Sound in-novation capability has a great significance and importanceto sustain economic growth in all the countries particularlyin developing economies [4]

e SDG-16 of the United Nations aims to developeffective transparent and accountable institutions at alllevels is goal aims at ensuring inclusive responsiverepresentative and participatory decision-making at alllevels Practitioners report that governance indicators(control of corruption political instability regulatoryquality government effectiveness rule of law and voice andaccountability) are valuable metrics for the formal institu-tional fabric of the world countries [5] Among these gov-ernance indicators voice and accountability is a vital part ofthe governance structure [6] which enables a countryrsquoscitizens to express and exercise their views in an effectivemanner ese views have the potential to influence gov-ernment processes and priorities Voice and accountability

HindawiMathematical Problems in EngineeringVolume 2020 Article ID 6540837 18 pageshttpsdoiorg10115520206540837

also encompasses military involvement in politics anddemocratic accountability which increase corruption anddecrease confidence of the investors and FDI inflows [7ndash9]Besides it entails the aspects of freedom of expression freemedia and press political rights and civil liberties [10 11]

Peace is at the heart of sustainable development SDG-16of the United Nations emphasizes the vital role of peace inbringing sustainable development [12 13] A peacefulstable and terrorism-free environment of a country is ofgreat importance for smooth business and market opera-tions foreign direct investment (FDI) inflows and economicgrowth On the other hand terrorist activities adverselyaffect the economy of a country by decreasing confidence ofinvestors and FDI inflows Further it also damages theessential infrastructure causes financial instability higheconomic cost and increases counterterrorism costs[14ndash16]

Previous studies reveal that investment in RampD ex-penditures and educational resources and patent protectionencourage the innovation process [17] General wisdomsuggests that these views hold because investment in suchelements accelerates the pace of innovation According toEge and Ege [17] however it is improper to assume thatpatent protection and subsidies in RampD are sufficient to spurinnovation Innovation is a multifaceted and complexphenomenon [18] therefore several institutional politicaland social conditions lead to different responses of inno-vation [19] Economic factors are not the only determinantsof innovation and that noneconomic factors can also affectinnovation However past research is extensively focused oneconomic factors in studying the phenomenon of innova-tion but the noneconomic and institutional factors havereceived scarce research attention in the extant literatureFor instance at the macrolevel few studies have investigatedthe relationship between political instability regulatoryquality government effectiveness control of corruption andinnovation [20 21] Voice and accountability is also anessential dimension of the governance structure and theempirical relationship between voice and accountability andinnovation is still unexplored specifically in laggard econ-omies Similarly past studies reported that terrorism has anadverse impact on growth [22] FDI inflows [23] andtourism [24] However the empirical relationship betweenterrorism and innovation is overlooked in the literatureerefore the relationship between voice and account-ability terrorism and innovation is an important researchgap and this study aims to fill it Besides the past researchreports that savings can improve resource allocation andboost technological innovation [25] Likewise the physicalinfrastructure is essential as it attracts FDI inflows enhanceseconomic growth and retains foreign firms talent andentrepreneurs [26] ese factors (savings and infrastruc-ture) can also influence innovation Considering thisbackground this study hypothesizes the four relationshipsIn sum the impacts of these mix of variables (ie consid-ering these variables in a single econometric model) oninnovation is unexplored and this study aims to explore it

Practitioners report that the sound body of innovationliterature focused primarily on developed and fast-growing

economies and the low-income economies have receivedless research attention [27 28] Scholars report that laggardeconomies have the lowest level of patents per millionperson [29] In this regard the present study intends toextend the research on innovation in laggard economies Toserve this purpose this study specifically focuses on Pak-istani dynamics to study the causes of its low innovationcapability Similarly the ample body of innovation studieshas focused on cross-country evaluation [21 29] Practi-tioners are in the view that cross-country studies provideonly a general understanding of the relationship betweenvariables [27 30] erefore detailed and comprehensiveimplications for each country cannot be drawn from suchresults [31 32] Studying innovation in laggard economiescould be an exciting and essential context which can help todraw policy formulations for laggard states e lack ofresearch evidence regarding laggard countries and non-economic factors motivates us to investigate reasons for lowinnovation performance of Pakistanis research is distinctfrom other studies in innovation domain in the followingways First it focuses its investigation in a laggard economywhich is an unexplored area of study Second it examinesthe impacts of voice and accountability terrorism infra-structures and savings upon innovation in a laggardeconomy (Pakistan) by employing robust cointegrationapproaches (ARDL and Maki) and several other econo-metric approaches (Johansen cointegration test dynamicordinary least square fully modified ordinary least squareand canonical cointegration regression) which have notbeen employed in this particular research context To sumthe econometric model (set of variables) and estimationeconometric methodologies are distinctive which have notbeen considered before in this particular research contexte main contributions of this study are summarized asfollows (i) it confirms that low voice and accountability is ahurdle in the innovation path (ii) it validates the negativerelationship between terrorism and innovation (iii) findingsshow that low savings is an obstacle in the innovation path oflaggard economies (iv) finally findings reveal that the in-adequate infrastructure has adverse impacts on innovation

2 Review of Literature andHypothesis Development

21 Voice and Accountability and Innovation Quality of thegovernance structure is essential for economic developmentand sound economic outcomes [5 33] Voice and ac-countability is an essential dimension of a good governancestructure [6] ldquoA higher level of voice and accountabilityshould mean the presence of the needed climate for thegrowth of various associations and civil society groups andguarantee more strength to business associations whichshould as the literature on NIS suggests lead to a betterinnovational systemrdquo [5] Voice and accountability hasseveral dimensions For example it include the aspects ofmilitary involvement in democratic accountability andpolitics [7] A higher level of military involvement in politicscan encourage armed opposition generate corruption andcreate an uneasy environment for foreign investors [9]

2 Mathematical Problems in Engineering

which may hinder them to invest in such countries Mul-tinational enterprises invest across the border in the form ofFDI which is a desirable channel for diffusions of knowledge[34] Several studies have reported a positive relationshipbetween FDI inflows and innovation in developing econo-mies [29 35] In the same time Busse [36] and Harms andUrsprung [37] argued that multinational firms are morelikely to invest in democratic countries

Busse and Hefeker [8] studied the data of 83 developingeconomies from the period of 1984ndash2003 ey examinedthe relationship between military involvement in politicsand FDI inflows e report showed a negative correlationbetween both Stasavage [38] reported a sound relationshipbetween presence (absence) of political checks and balancesand inflows of FDI He concluded that the average long-runimpact would be increased by 16 in private investment ifan authoritarian system (fewer checks and balance) turns toa political system (multiple and higher checks and balances)Trust in a democratic setup and fewer chances and threats ofmilitary involvement boost the confidence of the global anddomestic investors which increases the rate of investmentbusiness and market operations within the country Simi-larly a stable political and business environment also en-courages entrepreneurs to come up with novel ideas andinnovative products as well as services is has a positiveimpact on the overall innovation rate of a country On theother hand military involvementmilitary takeovers coulddiscontinue the economic business educational and de-velopment policies which may harm the economic growthof such countries Perceived threats of military coups createuncertainty in the overall environment of a country whichcan rattle economic financial business entrepreneurialproductive and innovative activities Military interventioncauses instability in the overall environment of the countryand thus unfavorable for economic development of acountry Technology transfer requires long-term projects inthe shape of FDI inflows However an unstable politicalenvironment of a country discourages potential investors toinvest in such countries [15] which can adversely affect theinnovation [39]

Voice and accountability addresses the question of howcitizens can hold the government accountable for policychoices [10 11] According to Howell [7] democratic ac-countability is defined by how governments react to con-cerns of its citizens When people raise and communicatetheir priorities and concerns then the government will bemore accountable and it leads to the possibility that thegovernment will be more accountable and responsive totheir demands needs and preferences [40] Similarly po-litical accountability means the government is responsiveand considers the voice and preferences of their citizens [41]On the other hand less-responsive government does notconsider the needs and preferences of their citizens In thisbackground citizensrsquo voice matters to convey their demandand preference to the government [33] which reflects ingovernment policies and actions If the citizens have lowspeaking power there are no or little chances that theirviews opinions and preferences will be reflected in gov-ernment policies and priorities [33] Low voice and

accountability lead to misallocation of resources favoritismin resources and cronyism [5] For example in the majorityof the developing countries governments initiate projects(without considering the needs demands and preferences ofthe citizens) that are linked with high kickbacks bribes andsuited to their personal interests Low accountability candivert government attention from key areas and they do notmake investment in key areas such as RampD investmenteducation and training and other vital areas that are con-sidered essential to enhance investment growth produc-tivity and innovation activities Researchers argued that thegovernment is trying to protect inefficient industries for thesake of its personal relations or business cronies [42] andthus such businesses are less willing to engage in techno-logical upgrading and innovation [42 43] erefore suchpractices may have an adverse impact on the overall in-novation activities of a country

Voice and accountability also measures the degreethrough which citizens can freely participate and expresstheir opinions and thoughts Regarding community par-ticipation in the decision-making process Brock et al [40]state ldquoan informal self-organised network of peers withdiverse skills and experience in a common area of profes-sional practice Members interact regularly to share ideasand strategies determine solutions and build innovationrdquoRecent research reported that innovation incubates andemerges within an environment especially if it is a friendlyone [17] Higher voice and accountability means soundcoordination exchange of information and the neededclimate for the growth of business associations and civilsocieties which may lead to a higher rate of innovation [5]

Voice and accountability covers the aspects of free mediafreedom of expression and association [44] A free mediainduces governments to provide adequate business and in-vestment climate and to work in the best interests of theircitizens [45] A free press enhances the flow of information andideas which leads to new discoveries and innovation [46]Varsakelis [47] reported a positive relationship between free-dom of press and innovation In the same vein Dutta et al [46]reported a positive relationship between free media and en-trepreneurship Innovativeness is an essential attribute in thepsyche of entrepreneurs which can create an impact on theoverall innovation system of a country [39 48 49]

In addition there may be several other possible channelsthrough which a free media and press can have a positiveimpact on innovation For example freedom of press andmedia can significantly affect innovation via four possiblemeans such as institutional quality asymmetric informationefficiency effect and image effect As for the first factorfreedom of press is an essential pillar of democracy withtransparent election and the rule of law and it is one of theessential and most important indicators of the institutionalquality It is showed that quality of institutions plays a vitalrole to nourish and attain technological progress [50]Similarly DiRienzo and Das [51] state that the rule of law(ie strong property right system) is essential to incentivizethe process of innovation

Regarding the asymmetric information free media andfree press are essential factors that shape public beliefs and

Mathematical Problems in Engineering 3

opinions and play a key role in the political decision-makingprocess [52] Free media should work in the best interest ofthe country and public and could be beneficial because freemedia facilitate to decrease the information asymmetrybetween government and citizens [53] Access to informa-tion is essential for innovation process [17] and the freedomof press facilitates the government to communicate with thehighly globalized world A free media helps the governmentto reduce the information gap with the world by providingaccurate news which helps the government to get feedbackand (re)design policies [52] erefore such practices areessential to update or (re)design business economic andfinancial policies promote domestic investment and attractglobal investors multinational firms etc ese can have apositive impact on the overall innovation activities Re-garding the efficiency effect free press and free media in-crease government accountability and generate greatermonitoring power which leads to a decrease in corruptpractices and corruption [54 55] Free press and free mediabuffer government corruption enhance institutional qualityprovide efficiency in government work and bring clarity ingovernmental policies Previous research shows that thequality of institutions and decrease in corruption help toenhance innovation [50 56]

Finally on the image effect freedom of media and pressnot only gets national attention but also global It attractsthe attention of a large community such as global investorsmultinationals firms and business communities A freemedia provides reliable information to global investors andforeign firms and encourages them to invest in suchcountries [52] However restrictions on press andmedia canbe regarded as a potential signal to shift towards the non-democratic regime which can dampen the countryrsquos imageand portray a negative image of the country globallySimilarly it can also be considered as a political separationfrom a highly globalized world A partially or nonfree pressand media fail to mirror the events and policies in a countryand restricts the flow of informationis can discourage thepotential domestic and global investors entrepreneursmultinational firms and businesses to invest in suchcountries us we propose the following hypothesis

H1 low voice and accountability can affect innovation ina laggard country

22 Terrorism and Innovation Scholars argued that inno-vation is a closedopen system Few studies considered it as aclosed system [57 58] Gong and Keller [59] argued that it isan open system because a country participating in the in-ternational trade and endeavoring to attract FDI couldbenefit from advanced technologies to become innovativee rapid increase in economic integration makes the tra-ditional approach (closed system) less relevant because theopenness to the FDI and the international trade results intechnology diffusion global innovation and economicgrowth [59 60]

FDI inflows facilitate the host countries to acquiretangible and intangible assets such as managerial skillscapital formation and modern technologies and obtain the

related physical assets [61 62] Koh [39] said that inwardFDI is an essential mechanism for developing countries toattain leading-edge technologies and best business practicesSalim et al [35] found that the most crucial aspect of FDI isthe technology spillover in the host country Developingcountries aimed at attracting FDI inflows and advanceforeign technologies which facilitate them to enhance theirinnovation [63] It also answers the question of how late-comer economies close the gap in their innovation withmore developed countries [29] FDI facilitates the transfer oftechnologies increases total factor productivity [64 65] andstimulates the technological change through the adoption offoreign advanced technologies skills and capital to increasethe level of productivity and innovation [29 66 67] usFDI is also an essential driver of innovation performance[68] Selaya and Sunesen [69] report that FDI inflows havethe potential to enhance knowledge competitiveness andentrepreneurial activities Innovativeness is an essential traitin the psyche of entrepreneurs and FDI inflows have apositive spillover impact on entrepreneurship [48 49]which could positively influence the overall rate of inno-vation in a country [39]

Terrorism and its impact on the economic growth re-ceived considerable scholarly attention and previous studiesreported the negative relationship between terrorism andeconomic growth [22 70] Terrorist attacks of 911 causedhorrific scale of destruction which caught the countries onvarious fronts such as economic political military andtechnological [39] Terrorism not only leads to deaths anddamages to property but also adversely affects the global andnational economies as well as the confidence of the investors[71] Devastating consequences of terrorist activities includelower FDI inflows [39 71] and economic business andmarket isolation It also restricts its access to the interna-tional market and the latest technologies and internationalresearch collaboration activities All such restrictions hindertechnological capabilities of a terrorism-prone countrySpeakman [72] states that market failure can hinder the rateof innovation of a country Technology transfer requireslong-term investment in the form of FDI inflows Terrorismincreases economic uncertainty and country-specific risks Itcompels foreign investors to move away from high-riskcountries and invest in low terrorism-prone countries this iscalled flight-to-safety effect [23 73] A decrease in inflows ofFDI could slow down the transfer of technologies andimpede economic growth and technological advancement[39]

According to Fu et al [74] FDI is not an unalloyedblessing to transfer technology Pietrobelli [75] states thattechnology can be diffused through various other channelslike movement of goods through the international tradeoutward foreign direct investment (OFDI) RampD expendi-ture international research collaboration travel of migra-tion of skilled people and travel of foreign educationworkers and students For example trade openness is anessential mechanism for catching-up economies to attainleading-edge technologies and best business practices [39]Koh [39] states that terrorism-related concerns such as strictmonitoring and inspection of shipping containers may slow


down the international trade and thereafter the rate ofinnovation Similarly RampD expenditures are the core of theinnovation process to explore new things and experimentsfor novelty [76] Increase in defense spending due to ter-rorism may crowd out RampD spending and productive in-vestment [39] resulting in a lower rate of innovation in thecountry Besides scholars reported that the counterterror-ism cost may have crowding-out effect on RampD investmentand slow down the growth and innovation rate in a country[77] Multinational enterprises are considered essential drivingforces for RampD activities around the world [74] and expected tohave a positive spillover effect through technology transfer andtechnical know-how [78] Similarly the interaction betweenforeign and local firms supports innovative process and ac-tivities [79 80] However the desired results can be achievedonly when technology receiving countries have a peacefulstable and terrorism-free environment

Terrorism-prone countries experience the shocks ofskilled labor force migration [81] this affects the rate ofinnovation in such countries Cuhls [82] called brain drainas ldquoinnovation migrationrdquo According to Bosetti et al [83]skilled migration has a positive impact on innovation inrecipient countries Entrepreneurs bring new technologiesand products and services [49] and they are much con-cerned about the potential events of terrorism when plan-ning organizing or establishing their businesses Terroristactivities directly affect the entrepreneurs and reduce theirwillingness to run their business in such areas and thusshowed adverse impact on the overall rate of innovation of acountry [39 84] e following hypothesis is proposed

H2 terrorism activities can adversely affect innovation

23 Infrastructure Development and Innovation e im-portance of infrastructures for economic development of acountry cannot be gainsaid It plays a major role in theeconomy and greases the wheels if not the engine of de-velopment Infrastructural development is a key driver foreconomic growth [85] Evidence revealed that a sound in-frastructure played a significant role in Chinese economicrevolution For instance factors such as average commutetimemdashfrom main ports airports and industrialparksmdashfeature prominently in Chinarsquos capacity to attractand retain talent foreign companies and entrepreneurs[86] Sound infrastructure of a country helps to attractmodern industriescompanies investors FDI inflows andentrepreneurs to invest because it facilitates to reduce severaltypes of costs such as operational cost transportation costand cost of doing businesses [26] Similarly such types ofinvestments and FDI inflows may comprise investmentsfrom technological firms and business and technologytransfer contracts which can enhance innovative activities inthe recipient countries Similarly infrastructures affect en-trepreneurial growth [87] and entrepreneurial growth affectsinnovation [39] Last but not the least physical infra-structures also include universities research labs andtechnology centers which can also a significant impact onoverall innovation rates of a country us the followinghypothesis is proposed

H3 infrastructural development positively affects theinnovation

24 Savings and Innovation Savings plays an important rolein achieving the targets of the economic growth of a country[88] Economic growth attained from savings is more sus-tainable compared to growth achieved through borrowedcapital us the interaction between savings and economicgrowth is crucial for the development policy Savings meetsthe investment requirements and capital accumulation andresultantly it generates a higher rate of growth [89] How-ever the direction of causality between both is still debatableamong practitioners [90] e economic growth of severaleconomies such as China India ailand South KoreaSingapore and Malaysia is attributed to high savings ratesContrastingly many Latin American and sub-Saharan Af-rican countries have low save rates which results in loweconomic growth in these countries [88] Low savings ratesdo not allow the countries to invest in key projects that areessentially intensive to technological innovation Bettersavings can improve resource allocation and boost tech-nological innovation [25 91] Practitioners report thatsavings matter for innovation because domestic savingsallows the domestic banks to cofinance projects and attractforeign investors [91] Such projects and investments mayinclude operations related to technology firms and busi-nesses which can influence the overall innovation rate in thecountry Likewise abundant savings allow China to makeoutward FDI and enhance its innovation capability [92]ese syntheses lead us to assume that higher savings caninfluence innovation us we propose the followinghypothesis

H4 savings can positively influence innovation

3 Data and Model Specification

is study examined the model by using data from theperiod 2002Q1 to 2016Q4 To cope with the problem of shortsample size the annual data were transformed into quarterlydata in Eviews version 10 Scholars report that annualfrequencies are insufficient to get sound results so usingmore observations increases the soundness of the statisticalresults [93] Similarly the transformation of data from lowto high frequency has been done in several past studies[23 24 94 95] (several researchers applied the econometrictechnique to transform data from low to high frequency forexample Kumar [96] transformed the 7 years of annual datainto quarterly data from the period 2010 to 2016 SimilarlyKumar et al [97] and Obradovic et al [95] transformed thedata from low to high frequency for the period of 2009 to2014 (6 years) and 2007 to 2014 (8 years) respectively) isstudy is limited to this sample period due to the followingreasons First Pakistan faced a worse terrorism wave after 911 and therefore this study aims to investigate the impact ofterrorism on innovation Secondly 1996 was the first yearwhen the World Bank recorded the governance indicatorsbut the governance indicators are missing in the years 19971999 and 2001 and became continuously available from the


year 2002 to onward Finally 2002 was the first year whenthe WIPO started to record the patent information Patentdata are widely used in past and recent studies to measureinnovation A proxy to measure innovation is our dependentvariable data were obtained from the World IntellectualProperty Organization (WIPO) e data of terrorism wereobtained from [98] e data of voice and accountabilitywere obtained from the Worldwide Governance Indicators(WGI) e data of gross fixed capital formation and do-mestic savings are obtained from the World DevelopmentIndicators (WDI) of the World Bank Table 1 describes thevariables and data sources

e general form of the innovation function consideringvoice and accountability terrorism physical infrastructuresand savings main determinants is modeled as follows

InINNt VAAtTSMt INFt SAVt( 1113857 (1)

For the empirical purpose all the variables are trans-formed into the natural logarithm except index following[15] e multivariate model containing relationship be-tween voice and accountability terrorism infrastructuresavings and innovation is expressed in the form of thefollowing equation

ln INNt empty0 +empty1VAAt +empty2 ln TSMt +empty3 ln INFt

+empty4 ln SAVt + εt

(2)

where ln INN VAA ln TSM ln INF and ln SAV re-spectively represent the innovation voice and account-ability terrorism infrastructure and savings constant isdenoted asempty0 while εt is the error termempty1empty2empty3 andempty4are the coefficients of voice and accountability terrorisminfrastructure and savings respectively

4 Methodology

41 Unit Root Test A nonstationary series may violate thebasic assumptions in the econometric model [99 100]Before proceeding towards the autoregressive distributivelag (ARDL) approach the first step is to ascertain the unitroot properties of the series e commonly used unit roottests are by Dickey and Fuller [101] (ADF) Phillips andPerron [102] (PP) DickeyndashFuller Generalized Least Squaresby Elliott et al [103] (DF-GLS) and Kwiatkowski et al[104](KPSS) e null hypothesis of ADF PP and DF-GLS isnonstationarity against the alternative hypothesis of sta-tionarity e KPSS unit root test has the null hypothesis ofstationary against the alternative hypothesis ofnonstationary

42 ARDL Approach to Cointegration e ARDL approachto cointegration has been a widely accepted econometric toolto examine the long-run relationship between variables eARDL approach to cointegration was developed by Pesaranet al [105] e ARDL approach has several advantages overthe conventional approaches to cointegration [106 107] Forinstance these traditional approaches require that all the

variables under consideration be integrated at the sameintegration order (ie I(1)) is assumption of the sameintegration order makes them less prominent e ARDLapproach has several advantages over the conventionalcointegration approaches First the ARDL approach tocointegration can be applied even if the variables are notintegrated at the same order of integration It means that theARDL approach can be utilized even if the variables are inthe form of I(1)I(1) or I(1)I(0) Secondly another advan-tage of the ARDL approach is that it provides reliable resultsfor both the short-run and the long-run periods ird thiscointegration approach is suitable for a small sample sizeFourthly the ARDL approach distinguishes between de-pendent and independent variables and it also separates theshort-run and long-run results Finally long-run resultscalculated through ARDL are unbiased even if some of theregressors are endogenous [24] For the ARDL approach tocointegration equation (1) is transformed into an unre-stricted error correction model (UECM) in the form of thefollowing equation

Δ ln INNt a0 + 1113944l

i1biΔ lnINNtminusi + 1113944

l

i1ciΔVAAtminusi

+ 1113944l

i1diΔ lnTSMtminusi + 1113944

l

i1eiΔ lnINFtminusi

+ 1113944l

i1fiΔ lnSAVtminusi + β1 lnINNtminus1

+ β2VAAtminus1 + β3 lnTSMtminus1

+ β4 lnINFtminus1 + β5 lnSAVtminus1 + εt

(3)

where Δ represents the first difference operator a0 is aconstant bi ci di ei and fi respectively represent thecoefficients of ln INN VAA ln TSM ln INF and ln SAVand εt denotes the error term

Two steps are involved performing the ARDL approache first step involves investigating the F-statistic and long-run relationship e null hypothesis of nonexistence oflong-run relationship among variables is H0π1 π2 π3 π4 0 while the alternative hypothesis is Haπ1ne π2ne π3ne π4ne 0 e asymptotic distributions of the teststatistics are nonstandard and either variables are integratedinto the form of I(0) or I(1) Two sets of asymptotic criticalvalues were computed by Pesaran et al [105] e first set ison the assumption that variables are integrated in the formof I(0) and the second set assumes that the variables areintegrated in the form of I(1)e first value [I(0)] is called asthe lower critical bound (LCB) and the second value [I(1)] iscalled as the upper critical bound (UCB) Whether thecointegration exists or not is decided on the following rule Ifthe calculated value of F-statistic is higher than the UCB thenull hypothesis with the assumption of no cointegration isrejected and it can be concluded that the dependent variableand its regressors cointegrate for a long-run relationship Ifthe computed value of F-statistic is less than the LCB thenull hypothesis with the assumption of no cointegration


among variables cannot be rejected It implies that variablesincluded in the empirical model do not have a long-runrelationship However if the computed value of F-statisticfalls between UCB and LCB the cointegration amongvariables is undecided [108] e alternative way to establishthe cointegration is to test the significant negative laggederror correction term (ECT) [24]

e second step involves investigating the short-runcoefficients and ECT In other words after estimating thelong-run association between variables the error correctionmodel (ECM) is validated to calculate the short-run rela-tionships and ECT e ECM is expressed as follows

Δ ln INNt δ0 + 1113944l

i1δ1iΔ lnINNtminusi + 1113944

l

i1δ2iΔVAAtminusi

+ 1113944l

i1δ3iΔ lnTSMtminusi + 1113944

l

i1δ4iΔ lnINFtminusi

+ 1113944l

i1δ5iΔ lnSAVtminusi + ϕECTtminus1 + εt

(4)

where Δ represents the first difference operator δ2 δ3 δ4and δ5 indicate the short-run coefficients of VAA ln TSM lnINF and ln SAV respectively δ0 is the constant and theerror correction term ie ECTtminus1 shows the speed ofadjustment

43 Makirsquos Approach to Cointegration e extant literaturehas several cointegration approaches with structural breakssuch as by Gregory and Hansen [109] and Hatemi-J [110]Recent research reveals that these approaches failed toperform better results [111 112] compared with the recentlydeveloped Maki cointegration approach which allowsmultiple structural breaks [113] Maki cointegration is easyto perform and during the investigation of cointegrationanalysis it provides information about five unknownstructural breaks in the data Four alternative models areproposed by the test as shown in equations (5)ndash(8)

Level shift (break in the intercept and without trend)

xt μ + 1113944r

i1μiDit + βprimeZt + ut (5)

Level shift with trend (break in the intercept and co-efficients and without trend)

xt μ + 1113944r

i1μiDit + βprimeZt + 1113944

r

i1βiprimeZtDit + ut (6)

Regime shift (break in the intercept and coefficients andwith the trend)

xt μ + 1113944r

i1μiDit + δt + βprimeZt + 1113944

r


Regime shift with trend (Break in the intercept coeffi-cients and trend)

xt μ + 1113944r

i1μiDit + δt + 1113944

r

i1δitDit + 1113944

r


where xt is the dependent variable and Di is the dummyvariable

5 Empirical Results and Discussion

Descriptive statistics of all the variables are reported inTable 2 Before the ARDL approach unit root properties ofthe variables under consideration are investigated via PPADF DF-GLS and KPSS unit root tests Table 3 reports theresults of unit root tests e empirical results show that allvariables are stationary at their first differences

A significant problem associated with the above reportedtraditional unit root tests is that they do not consider thestructural break in the series In overcoming this Clementeet alrsquos [114] (CMR) structural break unit root test wasapplied to study the structural break in the series is studyprefers to use CMR structural break unit root over Zivot andAndrewsrsquos [115] (ZA) unit root test One major weakness ofthe ZA unit root is that it considers only one structural breakin the series [116] However the CMR unit root test providesinformation about two unknown structural break points inthe series by offering two models namely (i) innovationaloutliers (IO) and (ii) additive outliers (AO) [117] eformer indicates the gradual shift in the mean of the seriesand the latter informs about a sudden change in the mean ofa series e results of the CMR unit root test are reported inTable 4

Overall the structural breaks relate to events of thenational and international level e period of 2008 at-tributed to the global financial crisis e great global re-cession had not only adversely affected the countries withstrong macroeconomics but also economically weakcountries like Pakistan Pakistan enjoyed the double amountof FDI inflows in 2005 compared to the year 2004 eperiod of 2007 was associated with the highest weave ofterrorist activities and fatalities in Pakistan Similarly theyear 2007 is the witness of emergency in Pakistan and theassassination of former prime ministers of Pakistan esample period of study from 2002 to 2008 was also linked

Table 1 Description of variables

Sr no Variable name Variable sign Measure of variable Source1 Patents ln INN Innovation is measured in terms of patent granted WIPO2 Voice and accountability VAA Index of voice and accountability WGI3 Terrorism ln TSM Total number of casualties in terrorist incidents GTD4 Gross fixed capital formation ln INF GFCF as of GDP WDI5 Domestic savings ln SAV Domestic savings as of GDP WDI


with military dictatorship having low voice and account-ability practices We incorporate some of the most impor-tant structural breaks in the econometric model andcalculate the long- and short-run results of the ARDL ap-proach to cointegratione findings are reported in Table 5

Further to examine the impact of structural breaksidentified by the CMR structural break unit root test wedeveloped three dummies (D1 2005 D2 2007 and D3 2008)We incorporate these dummies in the econometric modeland calculate the long- and short-run results of the ARDLapproach to cointegration e findings are reported inTable 5 e findings reveal that all structural breaks have noeffect in the long run However in the short run we note thatthe structural break for dummy 2005 has a positive andsignificant impact which may be due to higher FDI inflowsin the said period On the other hand the break dummy for2007 has a negative and significant impact is adverse

impact is most likely to be linked with higher terrorist ac-tivities emergency in the country and assassination of theformer prime minister of Pakistan Finally the breakdummy for 2008 has an adverse impact which is most likelyto be associated with global recession

is study prefers to apply the ARDL approach tocointegration due to its several advantages over traditionalcointegration approaches to investigate the long- and short-run relationship among variables It is imperative to choosethe appropriate lag length before applying the ARDL ap-proach because the lag length is very sensitive to F-statistice lag length selection criteria was determined via theAkaike Information Criterion (AIC) Afterwards the ARDLregressions were conducted for voice and accountabilityterrorism infrastructure savings and innovation to ex-amine the significance of the F-statistic Table 6 reports thecomputed value of the F-statistic e computed value of the

Table 3 Results of ADF PP DF-GLS and KPSS unit root analysis

ADF PP DF-GLS KPSS ADF PP DF-GLS KPSSLevel First difference

Trend + intercept Trend + interceptVariables T-stat T-stat T-stat LM-stat T-stat T-stat T-stat LM-statln INN minus1552 minus2321 minus1614 0155lowastlowast minus7170lowastlowastlowast minus4733lowastlowastlowast minus3386lowastlowast 0046VAA minus2844 minus2380 minus2858 0184lowastlowast minus3583lowastlowast minus4340lowastlowastlowast minus3726lowastlowastlowast 0072ln TSM minus1432 minus0460 minus1720 0300lowastlowastlowast minus3695lowastlowast minus4408lowastlowastlowast minus3308lowastlowast 0065ln INF minus1986 minus1522 minus2044 0296lowastlowastlowast minus3482lowastlowast minus4380lowastlowastlowast minus3162lowastlowast 0077ln SAV minus2228 minus1847 minus1989 0207lowastlowast minus4183lowastlowastlowast minus3922lowastlowast minus4261lowastlowastlowast 0113Note lowastlowastand lowastlowastlowastSignificant levels at 5 and 1

Table 4 CMR structural break unit root test

Variables AO-model T-stat TB1 TB2 IO-model T-stat TB1 TB2 ResultsLevelln INN minus3948 2012Q3 2010Q3 minus3675 2013Q4 2010Q4 I(0)VAA minus2645 2007Q2 2004Q3 minus2639 2004Q2 2004Q4 I(0)ln TSM minus3815 2006Q1 2010Q4 minus3903 2005Q4 2012Q2 I(0)ln INF minus3178 2005Q1 2007Q2 minus3782 2010Q2 2007Q2 I(0)ln SAV minus3165 2009Q3 2009Q1 minus3252 2008Q4 2004Q1 I(0)First differenceln INN minus5847lowastlowastlowast 2010Q1 2008Q2 minus5782lowastlowastlowast 2010Q1 2009Q1 I(1)VAA minus6627lowastlowastlowast 2004Q2 2006Q1 minus6662lowastlowastlowast 2006Q1 2006Q2 I(1)ln TSM minus5598lowastlowastlowast 2007Q1 2005Q1 minus5510lowastlowastlowast 2007Q1 2005Q1 I(1)ln INF minus6609lowastlowastlowast 2008Q1 2007Q2 minus8190lowastlowastlowast 2008Q1 2008Q1 I(1)ln SAV minus5072lowastlowastlowast 2005Q1 2011Q1 minus5930lowastlowastlowast 2011Q1 2011Q3 I(1)Note lowastlowastlowastSignificant levels at 1

Table 2 Descriptive statistics

ln INN VAA ln TSM ln INF ln SAVMean 5600 minus0889 6666 2804 3116Median 5968 minus0843 7000 2800 3090Maximum 6156 minus0672 8156 2973 3337Minimum 4843 minus1174 4843 2639 2810Standard deviation 0502 0149 1027 0104 0129Skewness minus0408 minus0642 minus0708 0261 minus0140Kurtosis 1292 2317 1954 1726 2969No of observations 60 60 60 60 60


F-statistic is 13851 higher than the UCB (4947) and sta-tistically significant at the level of 1 It therefore impliesthat a long-run relationship exists between innovation andits regressors

According to the bound testing approach VAA ln TSMln INF and ln SAV appear to be the long-run forcingvariables to explain the ln innovation e error correctionterm (Table 7) for equation (4) is ϕ -0323 and significant at1 It implies that long-run relationship exists betweeninnovation and its regressors e sign of ECT is negativeand statistically significant with a magnitude of 32 whichimplies that 32 adjustments are made every year

Table 7 reports the short-run and long-run results of theARDL approach to cointegration Regarding voice and ac-countability results show that low voice and accountabilityhas an adverse impact on innovation in both long run andshort run Practitioners report that policies which aim toenhance accountability procedures reduce corruption andimprove political and civil rights are crucial to enhanceinnovation [47] On the other hand a report by scholarsshow that democratic rights and accountability in Pakistanand low voice and accountability portray a dismal picture inPakistan [118 119] Governments in Pakistan are less ac-countable regarding their actions and policy choices De-partments and agencies that can hold accountable thegovernment regarding policy choices of the government arealso not much efficient and productive Regarding Pakistanit is reported that ldquoan organization such as the Account-ability Bureau serves more as the agents of the governmentin power than autonomous nonpartisanrdquo [119] Low ac-countability and struggle over power often provoke peoplein the government to spin the law towards their own in-terests and (mis)use state institutions to reach political endsSuch practices undermine the quality of institutions and leadto loss of government exchequer and national and financialinterests of a country In the same manner weak ac-countability leads towards corruption and corrupt practices

Table 5 ARDL long- and short-run estimates with year dummy

Variable Coefficient Standard error T-statisticLong-run estimatesConstant 11212 22627 0495VAA minus8901 3669 minus2425lowastlowastln TSM minus0022 0550 minus0041ln INF minus4372 3674 minus1189ln SAV minus0675 2982 minus0226D1 2005 0945 1049 0900D2 2007 0555 1665 0333D3 2008 0012 1178 0010Short-run estimatesΔln INN (minus1) 0878 0077 113137lowastlowastlowastVAA minus17156 1386 minus123743lowastlowastlowastΔVAA(minus1) 16218 1623 9987lowastlowastlowastln TSM minus0532 0122 minus4340lowastlowastlowastΔln TSM(minus1) 0440 0129 3414lowastlowastlowastln INF minus5152 0883 minus5833lowastlowastlowastΔln INF(minus1) 5627 0951 5915lowastlowastlowastln SAV minus2848 0764 minus3727lowastlowastlowastΔln SAV(minus1) 2569 0827 3105lowastlowastlowastD1 2005 0617 0137 4487lowastlowastlowastΔ D1 2005 minus0671 0157 minus4260lowastlowastlowastD2 2007 minus0958 0130 minus7360lowastlowastlowastΔ D2 2007 0897 0152 5886lowastlowastlowastD3 2008 minus0497 0132 3754lowastlowastlowastΔ D3 2008 minus0606 0142 minus4251lowastlowastlowastECT(minus1) minus0138 0023 minus5886lowastlowastlowast

R-square 0978Adjusted R-square 0963F-statistic 65173Prob(F-statistic) 0000Lag length selection criteria AICBound testing cointegration analysis (F-statistic values) 312lowast

Note lowast lowastlowast and lowastlowastlowastSignificant level at 10 5 and 1

Table 6 Results of bound testing for the ARDL model

Estimatedmodel

ln INN f(VAA ln TSM ln INF lnSAV)

Lag order (4 3 5 5 5)F-statistic value 13851Critical bound valueSignificancelevel I(0) bound I(1)

bound10 level 2345 32805 level 2763 38131 level 3738 4947


and corruption adversely affects innovation [51] Weakpractices of accountability lead to cronyism and favoritismof resources Recent research showed that cronyism has anadverse impact on innovation [5] Freedom of press andmedia is also restricted in Pakistan Pakistan is ranked at the142nd positions out of 180 countries regarding the freedomof press [120] High regulations and control over mediarestrict the flow of information and have an adverse impacton innovation [46]

On military involvement in politics Pakistan has swungbetween the civilian and military rule since its independencefrom Britain in 1947 According to Haq et al [119] militaryin Pakistan has a great influence on civilians political de-cision-making and patronage Pakistan has witnessed threecoups which caused discontinuation of business economicand financial policies In 72 years of independence militaryhas ruled almost half of the period and there is a commonperception that Pakistani military has always an influentialrole and accused of meddling in Pakistanrsquos politics During astudy related to Pakistan Haq et al [119] state that ldquothe socalled democratically elected government in power is cen-tralized in the hand of a military dictator Local governmentis weak with little administrative and financial authorityrdquoAn unstable and uncertain political environment and theperceived threat of military coup can smudge the nationalimage of the country globally ese conditions and un-certainties discourage domestic and international investors

multinational enterprises firms business communities andentrepreneurs to not make investments in long-term proj-ects in such countries Resultantly these circumstancesadversely affect the innovation and growth opportunities ofsuch economies

e empirical results showed that terrorism has anadverse impact on innovation Koh [39] stated that ter-rorism-related concerns decrease the rate of innovationFor instance military expenditures increase in Pakistandue to terrorism [16] higher military spending andcounterterrorism cost crowd RampD investments [39 77]Naqvi [121] noted the limited role of RampD as a majorobstacle to Pakistanrsquos path to innovation Pakistan isranked at the 9th position in the fragile states index in 2006[122] Scarcity of resources do not allow fragile states (likePakistan) to adopt or upgrade the costly but essentialtechnologies to enhance their productivity level [123]Technology transfer requires long-term projects in theshape of FDI inflows Scholars report that FDI inflows areessential for Pakistan to enhance its technological devel-opment [15] However high country risk and terrorism-specific risks reduced the flow of investments and investorsare reluctant to invest in Pakistan [15 124] Several studiesempirically proved that Pakistan has experienced a lowpace of FDI due to terrorism [23 125] and slow down ofFDI inflows could decrease the transfer of technologies andimpede technological advancement [39] Besides the as-pect of brain drain has become the worst problem inPakistan [126] which hinders its technological progressSimilarly terrorist activities has resulted in massive de-struction of the essential infrastructure [14] unproductivecosts of 12313 billion US $ [127] and loss of human capitalin Pakistan All these conditions have severely affected thepace of innovation in Pakistan

Results revealed that inadequate infrastructure affectsinnovation in the short run and the long run Pakistanexhibits poor infrastructure accompanied by lower bud-getary allocation for the infrastructural development Fewerresources do not allow fragile states such as Pakistan toinvest adequately in infrastructural development Lopez-Calix and Touqeer [124] reported the poor condition ofinfrastructure in Pakistan Similarly the government ofPakistan [128] acknowledged the inadequacy in infra-structure as a significant hindrance to the business growth Itis hit by a severe electricity crisis which affects various

Table 7 Long- and short-run estimates

Variable Coefficient Standard error T-statisticLong-run estimatesConstant 49374 10592 4661lowastlowastlowastVAA minus5550 1312 minus4229lowastlowastlowastln TSM minus0594 0235 minus2517lowastlowastlowastln INF minus8433 1597 minus5278lowastlowastlowastln SAV minus6747 1661 minus4061lowastlowastlowastShort-run estimatesΔln INN(minus1) 0244 0084 2910lowastlowastlowastΔln INN(minus2) 0211 0090 2347lowastlowastΔln INN(minus3) 0127 0065 1953lowastVAA minus7293 1415 minus5151lowastlowastlowastΔVAA(minus1) 2772 1738 1594ΔVAA(minus2) 2730 1746 1563ΔVAA(minus3) 1148 1186 0967ΔVAA(minus4) 3355 1061 3161lowastlowastlowastln TSM minus0838 0113 minus7400lowastlowastlowastΔln TSM(minus1) 0249 0158 1578Δln TSM(minus2) 0231 0152 1517ln INF minus3023 0921 minus3281lowastlowastlowastΔln INF(minus1) 1653 1033 1599Δln INF(minus2) 1630 1061 1535Δln INF(minus3) 0661 0878 0752Δln INF(minus4) 2758 0846 3257lowastlowastlowastln SAV minus5149 0700 minus7352lowastlowastlowastΔln SAV(minus1) 1900 0769 2468lowastlowastlowastΔln SAV(minus2) 1993 0809 2463lowastlowastΔln SAV(minus3) 1707 0724 2355lowastlowastΔln SAV(minus4) minus2350 0712 minus3297lowastlowastlowastECT(minus1) minus0323 0032 minus9897lowastlowastlowast


Table 8 Model statistics and diagnostic tests

ln INN f(VAA ln TSM ln INF ln SAV)R-square 0981Adjusted R-square 0964DW stat 159F-statistic 56866(0000)JB-normality test 4813(0100)LM test (BreuschndashGodfrey serial correlation) 1006(0379)ARCH-heteroskedasticity test 0011(0918)BreuschndashPaganndashGodfrey-heteroskedasticity test 1499(0148)Ramsey RESET test 0718(0404)Note P values are reported in parenthesis


sectors of its economy including the textile sector the secondlargest export sector Besides the condition of roadshighways transport and logistics system communicationinfrastructure airports ports etc are also not well devel-oped Scholars report that investment in infrastructure isessential for development and economic growth andinfrastructural constraints reduce business productivity byaround 40 percent [26 129] A sound infrastructure helps toattract FDI inflows modern industriescompanies entre-preneurs and investors to invest in countries having ade-quate infrastructure because quality infrastructure helps toreduce the cost of doing business such as operational costtariffs and transportation cost [26] On the other handinadequacy and low budgetary allocation in infrastructurehinder business investment entrepreneurial and innova-tive activities in Pakistan

Finally low savings significantly have an adverse effecton innovation in short run and long run Past studies reportthat domestic savings matter for innovation in developingcountries [25 91] However low savings is identified as amajor constraint in the economic growth of Pakistan [124]According to the latest available statistics with the WorldBank [130] savings to the GDP ratio is 677 in Pakistan in2017 which is at the lowest level from the last 32 years In1985 it was at 592 Besides low savings does not allow thecountries like Pakistan to invest in capital productive RampDand innovative projects On the contrary surplus savingsallow countries like China to make investment in developedcountries in the form of outward foreign direct investment(OFDI) which have a positive impact on innovation in thehome country via the reverse spillover technology effect[92 131]

ndash15

ndash10

ndash5

0

5

10

15

III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV2010 2011 2012 2013 2014 2015 2016

CUSUM5 significance

Figure 1 CUSUM

ndash04

ndash02

00

02

04

06

08

10

12

14


CUSUM of squares5 significance

Figure 2 CUSUMq


Table 8 shows that the empirical model has passed thenecessary requisite diagnostics tests Similarly the stabilityof the empirical model undergoes the test suggested byBrown et al [132] e findings of the CUSUM test indicatethat the line stays within a 5 level of significance (Figure 1)which assures the stability of the model Similarly theCUSUM square test is also applied e results of theCUSUM square are shown in Figure 2We find that there is alittle shock in the model during the period 2013Q2 to2013Q4 thereafter the model is stable again erefore theoverall model is reliable

Besides this study applies the inverse roots of thecharacteristic equation associated with the ARDL to ensurethe dynamic stability of the ARDL model e results arepresented in Figure 3 We noted that inverse roots lie inside

the unit circle that confirms the dynamic stability of theARDL model

51 Robust Checks

511 Results of Johansen Cointegration Test FollowingNadeem et al [24] the robustness of the ARDL long-runresults is examined by applying the cointegration approachdeveloped by Johansen and Juselius [107] e results inTable 3 show that all the series are integrated at the firstdifference As all the series are integrated at the first dif-ference it provides us an opportunity to make our resultsmore robust erefore we opt to apply Johansenrsquos coin-tegration to ascertain the long-run relationship among

ndash15

ndash10

ndash05

00

05

10

15

ndash15 ndash10 ndash05 00 05 10 15

Inverse roots of AR characteristic polynomial

Figure 3 Inverse roots of the AR characteristic polynomial

Table 9 Results of Johansen cointegration

No of coin equ (s)Trace test Eigenvalue test

Trace statistic 005 CV ProbY Max-eigen statistic 005 CV ProbY

Nonelowast 91562 69818 0000 36511 33876 0023At most 1lowast 55050 47856 0009 26658 27584 0065At most 2 28392 29797 0071 15226 21131 0273At most 3 13165 15494 0108 7408 14264 0442At most 4lowast 5756 3841 0016 5756 3841 0016(i) Trace test (2 cointegrating eqns at the 005 level) (ii) Max-eigenvalue test (1 cointegrating eqn at the 005 level) (iii) X denotes the rejection of the nullhypothesis at the 005 level (iv) Y represents MacKinnonndashHaugndashMichelis (1999) P values and (v) CV represents critical value

Table 10 Maki cointegration results

Regime T-statistic Break yearsLevel shift (break in intercept and without trend) minus13645lowastlowastlowast 2014Q4Level shift with trend (break in intercept and coefficients and without trend) minus13634lowastlowastlowast 2002Q4Regime shift (break in intercept and coefficients and with the trend) minus19700lowastlowastlowast 2003Q2 2004Q3 2014Q1 2015Q2Regime shift with trend (break in intercept coefficients and trend) minus15890lowastlowastlowast 2008Q2 2010Q1 2011Q3 2013Q2 2015Q1Note lowastlowastlowastSignificance level at 1


variables Trace and eigenvalue tests are applied to confirmthe cointegration equations e cointegration equation(s)assures the existence of long-run relationship betweenvariables Table 9 shows the results of the trace and ei-genvalue tests based on the Johansen cointegration ap-proach According to the trace and maximum eigenvaluetest the number of cointegration equations is two and onerespectively us these results confirm the long-run rela-tionship among variables Hence the results of Johansenrsquoscointegration support the results of the F-statistic

512 Maki Cointegration Results Maki cointegration isapplied to examine the cointegration between innovationand its determinants with structural breaks e findings ofthis cointegration are given in Table 10 suggesting the ex-istence of cointegration relationship with structural breaksin all four models from equations (5) to (8) It implies that itconfirms the existence of cointegration relationship amonginnovation voice and accountability terrorism infra-structure and savings at the level shift level shift with trendregime shift and regime shift with trend

513 Results of Dynamic Ordinary Least Square (DOLS)Fully Modified Ordinary Least Square (FMOLS) and CCR(Canonical Cointegration Regression) DOLS [133] FMOLS[106] and CCR [134] are then applied e results of DOLSFMOLS and CCR are reported in Table 11 e results showthat the coefficient of all variables retains the same sign(some variation in their magnitudes) as their ARDLcounterpart It is evident again that lower voice and

accountability terrorism inadequate infrastructure and lowsavings all impose an adverse impact on innovation In caseof DOLS the impact of lower voice and accountability isnegative but statistically insignificant Also according toFMOLS and CCR results the impact of terrorism is negativebut statistically insignificant According to Nadeem et al[24] contradictory results may be due to different back-grounds of econometric approaches us our results arerobust to alternative estimation techniques

6 Conclusion Implications Limitation andFuture Research Directions

By adopting the ARDL andMaki cointegration as well as thedata from 2002Q1 to 2016Q4 this study empirically in-vestigated the impacts of voice and accountability terrorisminfrastructure and savings on innovation in Pakistan eempirical results showed that low voice and accountabilityhigh terrorism inadequate infrastructure and low savingshave an adverse impact on innovation in the short and longrun Robust checks such as the Johansen cointegration testdynamic ordinary least square fully modified ordinary leastsquare and canonical cointegration regression corroboratethe findings is study does not claim that foreign anddomestic investors multinational enterprises businessesfirms and entrepreneurs always consider voice and ac-countability when planning to invest is study is in theview that higher voice and accountability helps to enhancethe quality of institutions and decision-making Further itincreases community participation and decreases corruptionand chances of undue intervention All these conditions leadto strong institutional settings continuity of policies andbetter resourcefund utilization Besides they boost eco-nomic business entrepreneurial and long-term investmentopportunities and activities Terrorism should be dealt withfair justice equal distribution of wealth better surveillancecoordination among various intelligence agencies at nationaland international level and effective implementation ofcounterterrorism policies Finally this study suggests thatsound infrastructural development and higher savings areessential for the economic development of a country andalso deserved extensive government attention

is study has significantly contributed to the innova-tion literature by investigating the relationship betweenvoice and accountability terrorism and innovation whichwas overlooked in the existing body of literature e maincontributions of this study are as follows firstly providingempirical support to the theoretical argument of Koh [39]who reported that terrorism can have an adverse impact oninnovation Secondly it investigated the relationship be-tween voice and accountability and innovation e resultshowed that low voice and accountability had an adverseimpact on innovation ird this study hypothesized therelationship between savings and innovation Findingsrevealed that low savings are a hurdle in the innovation pathFinally findings show that inadequacy in infrastructure hasadverse impacts on innovation is study fills the researchgap by selecting appropriate and essential variables in anemerging economy context after 911 and applying the

Table 11 DOLS FMOLS and CCR estimates

Variable Coefficient Standard error T-statisticDOLS estimatesConstant 30944 6696 4620lowastlowastlowastVAA minus0437 0647 minus0675ln TSM minus0506 0167 minus3035lowastlowastlowastln INF minus4403 0834 minus5278lowastlowastlowastln SAV minus3269 1107 minus2953lowastlowastlowastR-square 0732Adjusted R-square 0625FMOLS estimatesConstant 17357 6123 2834lowastlowastlowastVAA minus2964 0720 minus4114lowastlowastlowastln TSM minus0092 0136 minus0677ln INF minus2732 0999 minus2734lowastlowastlowastln SAV minus1968 0983 minus2002lowastlowastR-square 0335Adjusted R-square 0286CCR estimatesConstant 18768 6671 2813lowastlowastlowastVAA minus2279 0761 minus2993lowastlowastlowastln TSM minus0186 0143 minus1298ln INF minus2796 1076 minus2596lowastlowastlowastln SAV minus1972 1024 minus1925lowastlowastR-square 0357Adjusted R-square 0309Note lowastlowast and lowastlowastlowastSignificant levels at 5 and 1


econometric methodologies and robust checks that have notbeen previously employed in this particular research contextof this laggard economy Results of this study are significantcontributions to the literature and results offer new insightsfor future research and debate

is study offers some policy implications First forcapacity building at all levels international efforts are neededto strengthen institutions in developing countries Forhigher accountability governments should provide an openclimate where they remain accountable to different societaland interest groups regarding their policy matters For thisreason it is essential for the government to ensure there isparticipation of citizens in decision-making process Besidesboth public-private and interfirm interaction should beencouraged to enhance the flow of information andknowledge and development of new technologies [5] Forgreater accountability it is evident that corruption cannot becurbed with the declaration of assets of politicians gov-ernment employees or with the hollow slogans of ac-countability It requires a strong will of the government tocurb corruption

Similarly anticorruption departments should also stressthe need to increase their investigation against corruptionand corrupt practices further Every corrupt individualshould be tried fairly and greater transparency is required tocurb corruption Essentially the anticorruption departmentsplaying a role as watchdogs must be free from political orother pressures to deliver fruitful results Similarly all in-stitutions should work in their defined limits and should notinterfere with othersrsquo rules of business Finally press andelectronic media should also be free from any unduepressure It is also the responsibility of the media to performtheir duties ethically and professionally Exaggeration ofnewsmay harm the national image and prestige of a countryerefore the electronic and print media are expected toplay an effective and responsible role

Secondly our antiterrorism policy implications includethree levels terrorism as a deep-rooted phenomenon can bereduced through equal distribution of wealth fair justiceand providing necessities of life to people Secondly lawenforcement agencies must reinforce their surveillance andcoordination among various intelligence agencies must bestrengthened to counter terrorism irdly the SDGs of theUnited Nations emphasize the vital role of peace to attainsustainable development Terrorism is a global issue so thisstudy asserts that cooperation at the international levelamong intelligence and law enforcement agencies is essentialto curb the malignant disease of terrorism

irdly infrastructure has a great importance forbusiness and economic development and plays a vital role toattract domestic and foreign investors In countries whereinfrastructural inadequacy exists governments are needed toenhance the budgetary allocation of capital formationChina-Pakistan Economic Corridor (CPEC) can provide agreat opportunity to grow business and investment activitiesin Pakistan Pakistan can exploit CPEC opportunity asCPEC projects include roads and highways railway net-works fiber optic cable and industrial and energy projectsMoreover the Gwadar deep seaport and the new Gwadar

international airport can also be a great opportunity forPakistan to boost its feeble economy Improved infra-structure and higher business and economic activities inGwadar will make it a business hub which would also help toattract FDI inflows is study suggests that Pakistan shouldput effort for early or timely completion of CPEC projects tocultivate the potential benefits of CPEC Besides theupgradation and maintenance of the existing infrastructureare equally important

Finally countries with low savings must put effort toenhance their savings Such countries should try to increasesavings by utilizing effective efficient and emergent mea-sures According to Lopez-Calix and Touqeer [124] Paki-stanrsquos tax revenue is the lowest in the world Some possiblereasons of low savings in Pakistan are low tax revenues highnondevelopment recurring expenditures and unnecessarysubsidies and reliefs to achieve their political motivesPakistan and similar other laggard countries are required toutilize maximum funds in development and research ori-ented projects instead of providing unnecessary subsidiesand reliefs Tax authorities should devote their efforts tobring the majority of people under the tax net Besides taxevasion in businesses and firms and corruption in tax de-partments should be controlled It can be achieved throughpenalizing the culprits and offering incentives to dedicatedand honest officers and officials Furthermore tax evasioncan be controlled by utilizing effective and efficient measuresand by means of strong coordination and liaison amongrelated departments Also governments are required tointroduce new financial products and tools and promote thesavings culture which would also be beneficial to increasethe savings

is study has some limitations which provide oppor-tunities for future research Future studies can extend thisstudy in the following directions First constraints of datarestricted us to apply the CMR structural break unit root testdealing with two structural breaks in the series Uponavailability of longer time series data we should applyCarrion-i-Silvestre et alrsquos [135] test which is more suitableand deals up to five structural breaks stemming in the seriesfor examining the integrating properties of the variablesSimilarly future research can be conducted on the runningissue by applying the NARDL bounds testing approach toexamine the nonlinear effect of voice and accountabilityterrorism infrastructure and savings on innovation Sec-ondly for examining extent and direction of effects of in-dependent variables on the dependent variable theinnovative accounting approach (variance decompositionand impulse response function) is more suitable for reliableempirical results

irdly future studies can explore other noneconomicfactors which may have a positive or negative impact oninnovation Besides healthy governance structures are thelife lines for any country and crucial for long-term economicgrowth and development So future studies can investigatethe separate effect of each governance indicator on inno-vation and can compare the results and observe the dif-ference Fourthly future research may consider terroristattacksnumber of injuries as an indicator to measure


terrorism instead of the number of causalities Similarly theycan consider domestic and transactional terrorism Finallyalthough time series analysis provides fruitful results andimportant for policy formulation the generalizability offindings is limited At the same time researchers such asCastellaci et al [27] report that econometric models seek formore general results which are valid for large sample ofstatistical units (firmssectorsregionscountries) but theprocess behind each unitsrsquo performance remains unex-plained Every econometric methodology has its own ad-vantages and limitations however future scholars areencouraged to consider the panel dataset

Data Availability

Data used in this study are publically available and all thedata sources are mentioned e data used to support thefindings of this study are available from the correspondingauthor upon request

Conflicts of Interest

e authors declare that they have no conflicts of interest

Acknowledgments

is study was supported by Tianjin Philosophy and SocialSciences Planning Project (grant number TJGL18-003)

References

[1] B S Silvestre and D M Tırca ldquoInnovations for sustainabledevelopment moving toward a sustainable futurerdquo Journalof Cleaner Production vol 208 pp 325ndash332 2019

[2] United Nations Goal 9 Build Resilient Infrastructure Pro-mote Sustainable Industrialization and Foster InnovationUnited Nations New York NY USA 2018 httpswwwunorgsustainabledevelopmentwp-contentuploads2019079pdf

[3] R E Lopez and E Figueroa ldquoOn the nexus between fiscalpolicies and sustainable developmentrdquo Sustainable Devel-opment vol 24 no 4 pp 201ndash219 2016

[4] J Fagerberg M Srholec and B Verspagen ldquoInnovation andeconomic developmentrdquo in Handbook of the Economics ofInnovation pp 833ndash872 Elsevier Amsterdam Netherlands2010

[5] M I Sabry ldquoFostering innovation under institutional de-ficiencies formal state-business consultation or cronyismrdquoEconomia Politica vol 36 no 1 pp 79ndash110 2019

[6] A Rodrıguez-Pose and G Cols ldquoe determinants of foreigndirect investment in sub-Saharan Africa what role forgovernancerdquo Regional Science Policy amp Practice vol 9 no 2pp 63ndash81 2017

[7] L D Howell International Country Risk Guide MethodologyPRS Group East Syracuse NY USA 2011

[8] M Busse and C Hefeker ldquoPolitical risk institutions andforeign direct investmentrdquo European Journal of PoliticalEconomy vol 23 no 2 pp 397ndash415 2007

[9] S Shan Z Lin Y Li and Y Zeng ldquoAttracting Chinese FDIin africardquo Critical Perspectives on International Businessvol 14 no 23 pp 139ndash153 2018

[10] D Kaufmann A Kraay and P Zoido Governance MattersPolicy Research Working Paper World Bank WashingtonDC USA 1999

[11] D Kaufmann A Kraay and M Mastruzzi GovernanceMatters IV Governance Indicators for 1996ndash2004 eWorldBank Washington DC USA 2005

[12] S Brown ldquoPeace is at the heart of sustainable developmentrdquo2018 httpswwwsustainablegoalsorgukpeace-heart-sustainable-development

[13] Sustainable Development Goals ldquoSustainable DevelopmentGoals 16rdquo 2015 httpssustainabledevelopmentunorgsdg16

[14] A Ismail and S Amjad ldquoDeterminants of terrorism inPakistan an empirical investigationrdquo Economic Modellingvol 37 pp 320ndash331 2014

[15] S Bano Y Zhao A Ahmad S Wang and Y Liu ldquoWhy didFDI inflows of Pakistan decline From the perspective ofterrorism energy shortage financial instability and politicalinstabilityrdquo Emerging Markets Finance and Trade vol 55no 1 pp 90ndash104 2019

[16] M Nasir and M Shahbaz ldquoWar on terror do militarymeasures matter Empirical analysis of post 911 period inPakistanrdquo Quality amp Quantity vol 49 no 5 pp 1969ndash19842015

[17] A Ege and A Y Ege ldquoHow to create a friendly environmentfor innovation A case for europerdquo Social Indicators Re-search vol 144 no 1 pp 451ndash473 2019

[18] F Crespi ldquoNotes on the determinants of innovation a multi-perspective analysisrdquo March 2004 httpssrncomabstract524503

[19] T Makkonen and T Inkinen ldquoInnovative capacity educa-tional attainment and economic development in the Euro-pean Union causal relations and geographical variationsrdquoEuropean Planning Studies vol 21 no 12 pp 1958ndash19762013

[20] S Oluwatobi U Efobi I Olurinola and P Alege ldquoInno-vation in africa why institutions matterrdquo South AfricanJournal of Economics vol 83 no 3 pp 390ndash410 2015

[21] G Allard C A Martinez and C Williams ldquoPolitical in-stability pro-business market reforms and their impacts onnational systems of innovationrdquo Research Policy vol 41no 3 pp 638ndash651 2012

[22] A Abadie and J Gardeazabal ldquoe economic costs ofconflict a case study of the Basque Countryrdquo AmericanEconomic Review vol 93 no 1 pp 113ndash132 2003

[23] S J H Shahzad M Zakaria M U Rehman T Ahmed andB A Fida ldquoRelationship between FDI terrorism and eco-nomic growth in Pakistan pre and post 911 analysisrdquo SocialIndicators Research vol 127 no 1 pp 179ndash194 2016

[24] M A Nadeem Z Liu Y Xu K Nawaz M Y Malik andA Younis ldquoImpacts of terrorism governance structuremilitary expenditures and infrastructures upon tourismempirical evidence from an emerging economyrdquo EurasianBusiness Review vol 10 no 1 pp 185ndash206 2020

[25] W Bagehot Lombard Street Wiley Homewood IL USA1873

[26] C T Wekesa N H Wawire and G Kosimbei ldquoEffects ofinfrastructure development on foreign direct investment inKenyardquo Journal of Infrastructure Development vol 8 no 2pp 93ndash110 2017

[27] F Castellaci S Grodal S Mendonca and M Wibe ldquoAd-vances and challenges in innovation studiesrdquo Journal ofEconomic Issues vol 39 no 1 pp 91ndash121 2005


[28] R R Nelson National Innovation Systems A ComparativeAnalysis Oxford University Press on Demand Oxford UK1993

[29] J Wu Z Ma and S Zhuo ldquoEnhancing national innovativecapacity the impact of high-tech international trade andinward foreign direct investmentrdquo International BusinessReview vol 26 no 3 pp 502ndash514 2017

[30] M A Boutabba ldquoe impact of financial developmentincome energy and trade on carbon emissions evidencefrom the Indian economyrdquo Economic Modelling vol 40pp 33ndash41 2014

[31] J B Ang ldquoEconomic development pollutant emissions andenergy consumption in Malaysiardquo Journal of Policy Mod-eling vol 30 no 2 pp 271ndash278 2008

[32] M Lindmark ldquoAn EKC-pattern in historical perspectivecarbon dioxide emissions technology fuel prices and growthin Sweden 1870ndash1997rdquo Ecological Economics vol 42 no 1-2pp 333ndash347 2002

[33] B Sharma ldquoVoice accountability and civic engagement aconceptual overviewrdquo UNDP New York NY USA 2008

[34] P N Ghauri and M Yamin ldquoRevisiting the impact ofmultinational enterprises on economic developmentrdquoJournal of World Business vol 44 no 2 pp 105ndash107 2009

[35] A Salim M R Razavi and M Afshari-Mofrad ldquoForeigndirect investment and technology spillover in Iran the role oftechnological capabilities of subsidiariesrdquo TechnologicalForecasting and Social Change vol 122 pp 207ndash214 2017

[36] M Busse ldquoTransnational corporations and repression ofpolitical rights and civil liberties an empirical analysisrdquoKyklos vol 57 no 1 pp 45ndash65 2004

[37] P Harms and H W Ursprung ldquoDo civil and political re-pression really boost foreign direct investmentsrdquo EconomicInquiry vol 40 no 4 pp 651ndash663 2002

[38] D Stasavage ldquoPrivate investment and political institutionsrdquoEconomics and Politics vol 14 no 1 pp 41ndash63 2002

[39] W T H Koh ldquoTerrorism and its impact on economicgrowth and technological innovationrdquo Technological Fore-casting and Social Change vol 74 no 2 pp 129ndash138 2007

[40] K Brock R McGee and M Besuijen Enabling CitizenEngagement and Accountable Responsive GovernmentStrategy Synthesis Institute of Development Studies FalmerUK 2014

[41] E Peruzzotti ldquoBroadening the notion of democratic ac-countability participatory innovation in Latin AmericardquoPolity vol 44 no 4 pp 625ndash642 2012

[42] P Enderwick ldquoWhatrsquos bad about crony capitalismrdquo AsianBusiness amp Management vol 4 no 2 pp 117ndash132 2005

[43] R M Desai How Cronyism Harms the Investment Climatee Brookings Institution Washington DC USA 2007

[44] A A Mengistu and B K Adhikary ldquoDoes good governancematter for FDI inflows Evidence from Asian economiesrdquoAsia Pacific Business Review vol 17 no 3 pp 281ndash299 2011

[45] S Pal N Dutta and S Roy ldquoMedia freedom socio-politicalstability and economic growthrdquo 2011 httpesnieorgpdftextes_2011Dutta-Media-Freedompdf

[46] N Dutta S Roy and R S Sobel ldquoDoes a free press nurtureentrepreneurshiprdquo American Journal of Entrepreneurshipvol 4 no 1 p 71 2011

[47] N C Varsakelis ldquoEducation political institutions and in-novative activity a cross-country empirical investigationrdquoResearch Policy vol 35 no 7 pp 1083ndash1090 2006

[48] R D Hisrich M P Peters and D A Shepherd Entrepre-neurship McGraw-Hill New York NY USA 2014

[49] S Tabrizian ldquoTechnological innovation to achieve sustain-able developmentmdashrenewable energy technologies diffusionin developing countriesrdquo Sustainable Development vol 27no 3 2019

[50] O Dincer ldquoDoes corruption slow down innovation Evi-dence from a cointegrated panel of US statesrdquo EuropeanJournal of Political Economy vol 56 pp 1ndash10 2019

[51] C DiRienzo and J Das ldquoInnovation and role of corruptionand diversityrdquo International Journal of Cross CulturalManagement vol 15 no 1 pp 51ndash72 2015

[52] A Alam and S Z Ali Shah ldquoe role of press freedom ineconomic development a global perspectiverdquo Journal ofMedia Economics vol 26 no 1 pp 4ndash20 2013

[53] T Besley R Burgess and A Prat ldquoMass media and politicalaccountabilityrdquo Ne Right to Tell Ne Role of Mass Media inEconomic Development pp 45ndash60 World Bank Wash-ington DC USA 2002

[54] N Dutta and S Roy ldquoe interactive impact of pressfreedom and media reach on corruptionrdquo Economic Mod-elling vol 58 pp 227ndash236 2016

[55] S K Chowdhury ldquoe effect of democracy and pressfreedom on corruption an empirical testrdquo Economics Lettersvol 85 no 1 pp 93ndash101 2004

[56] F L Rivera-Batiz ldquoDemocracy governance and economicgrowth theory and evidencerdquo Review of Development Eco-nomics vol 6 no 2 pp 225ndash247 2002

[57] J L Furman and R Hayes ldquoCatching up or standing stillrdquoResearch Policy vol 33 no 9 pp 1329ndash1354 2004

[58] M E Porter and S Stern ldquoNational innovative capacityrdquoeGlobal Competitiveness Report pp 102ndash118 HarvardBusiness School Boston MA USA 2001

[59] G Gong and W Keller ldquoConvergence and polarization inglobal income levels a review of recent results on the role ofinternational technology diffusionrdquo Research Policy vol 32no 6 pp 1055ndash1079 2003

[60] J Eaton and S Kortum ldquoTrade in ideas Patenting andproductivity in the OECDrdquo Journal of International Eco-nomics vol 40 no 3-4 pp 251ndash278 1996

[61] X Liu C Shu and P Sinclair ldquoTrade foreign direct in-vestment and economic growth in Asian economiesrdquo Ap-plied Economics vol 41 no 13 pp 1603ndash1612 2009

[62] T B Vu B Gangnes and I Noy ldquoIs foreign direct in-vestment good for growth Evidence from sectoral analysisof China and Vietnamrdquo Journal of the Asia Pacific Economyvol 13 no 4 pp 542ndash562 2008

[63] K-y Cheung and P Lin ldquoSpillover effects of FDI on in-novation in China evidence from the provincial datardquoChinaEconomic Review vol 15 no 1 pp 25ndash44 2004

[64] D T Coe and E Helpman ldquoInternational RampD spilloversrdquoEuropean Economic Review vol 39 no 5 pp 859ndash887 1995

[65] Y Huang et al ldquoe heterogeneous effects of FDI andforeign trade on CO2 emissions evidence from ChinardquoMathematical Problems in Engineering vol 2019 Article ID9612492 14 pages 2019

[66] J W Fedderke and A T Romm ldquoGrowth impact and de-terminants of foreign direct investment into South Africa1956-2003rdquo Economic Modelling vol 23 no 5 pp 738ndash7602006

[67] M Singhania and A Gupta ldquoDeterminants of foreign directinvestment in Indiardquo Journal of International Trade Law andPolicy vol 10 no 1 pp 64ndash82 2011

[68] C Wang and M I Kafouros ldquoWhat factors determine in-novation performance in emerging economies Evidence


from Chinardquo International Business Review vol 18 no 6pp 606ndash616 2009

[69] P Selaya and E R Sunesen ldquoDoes foreign aid increaseforeign direct investmentrdquo World Development vol 40no 11 pp 2155ndash2176 2012

[70] Z Eckstein and D Tsiddon ldquoMacroeconomic consequencesof terror theory and the case of Israelrdquo Journal of MonetaryEconomics vol 51 no 5 pp 971ndash1002 2004

[71] S Narayan T-H Le and S Sriananthakumar ldquoe influ-ence of terrorism risk on stock market integration evidencefrom eight OECD countriesrdquo International Review of Fi-nancial Analysis vol 58 pp 247ndash259 2018

[72] J Speakman Toward an Innovation Policy for PakistanWorld Bank Washington DC USA 2012

[73] B Frijns A Tourani-Rad and I Indriawan ldquoPolitical crisesand the stock market integration of emerging marketsrdquoJournal of Banking amp Finance vol 36 no 3 pp 644ndash6532012

[74] X Fu C Pietrobelli and L Soete ldquoe role of foreigntechnology and indigenous innovation in the emergingeconomies technological change and catching-uprdquo WorldDevelopment vol 39 no 7 pp 1204ndash1212 2011

[75] C Pietrobelli Emerging Forms of Technological CooperationNe Case for Technology Partnerships-Inner Logic Examplesand Enabling Environment Science and Technology IssuesUNCTAD Geneva Switzerland 1996

[76] A Alam M Uddin and H Yazdifar ldquoInstitutional deter-minants of RampD investment evidence from emergingmarketsrdquo Technological Forecasting and Social Changevol 138 pp 34ndash44 2019

[77] K C Desouza W T H Koh and A M Ouksel ldquoInfor-mation technology innovation and the war on terrorismrdquoTechnological Forecasting and Social Change vol 74 no 2pp 125ndash128 2007

[78] J R Markusen Multinational Firms and the Neory of In-ternational Trade MIT Press Cambridge MA USA 2002

[79] M Blomstrom and A Kokko ldquoMultinational corporationsand spilloversrdquo Journal of Economic Surveys vol 12 no 3pp 247ndash277 1998

[80] J Scott-Kennel ldquoForeign direct investment and local link-ages an empirical investigationrdquoManagement InternationalReview vol 47 no 1 pp 51ndash77 2007

[81] A Dreher T Krieger and D Meierrieks ldquoHit and (they will)run the impact of terrorism on migrationrdquo EconomicsLetters vol 113 no 1 pp 42ndash46 2011

[82] K Cuhls ldquoe brain drain problemrdquo Technological Fore-casting amp Social Change vol 5 no 74 pp 708ndash714 2007

[83] V Bosetti C Cattaneo and E Verdolini ldquoMigration ofskilled workers and innovation a European perspectiverdquoJournal of International Economics vol 96 no 2 pp 311ndash322 2015

[84] T Bruck F Schneider and J A Tavares ldquoTerror and humaninsecurity editorial introductionrdquo European Journal of Po-litical Economy vol 27 pp S1ndashS4 2011

[85] United Nations Department of Economic and Social AffairsUnited Nations New York NY USA 2017 httpswwwunorgdevelopmentdesaennewsnocat-uncategorizedinfrastructure-devhtml

[86] UNCTAD Investment Policy Review Kenya United NationsPublication New York NY USA 2005

[87] N Roig-Tierno J Alcazar and S Ribeiro-Navarrete ldquoUse ofinfrastructures to support innovative entrepreneurship andbusiness growthrdquo Journal of Business Research vol 68no 11 pp 2290ndash2294 2015

[88] S K Patra D S Murthy M Babu Kuruva and A MohantyldquoRevisiting the causal nexus between savings and economicgrowth in India an empirical analysisrdquo Economia vol 18no 3 pp 380ndash391 2017

[89] T Singh ldquoDoes domestic saving cause economic growth Atime-series evidence from Indiardquo Journal of Policy Modelingvol 32 no 2 pp 231ndash253 2010

[90] C F Tang and B W Tan ldquoA revalidation of the savings-growth nexus in Pakistanrdquo Economic Modelling vol 36pp 370ndash377 2014

[91] P Aghion et al ldquoWhen does domestic savings matter foreconomic growthrdquo IMF Economic Review vol 64 no 3pp 381ndash407 2006

[92] M Li D Li M Lyles and S Liu ldquoChinese MNEsrsquo outwardFDI and home country productivity the moderating effect oftechnology gaprdquo Global Strategy Journal vol 6 no 4pp 289ndash308 2016

[93] S Zhou ldquoe power of cointegration tests versus data fre-quency and time spansrdquo Southern Economic Journal vol 67no 4 pp 906ndash921 2001

[94] M Shahbaz M Arouri and F Teulon ldquoShort- and long-runrelationships between natural gas consumption and eco-nomic growth evidence from Pakistanrdquo Economic Model-ling vol 41 pp 219ndash226 2014

[95] S Obradovic et al ldquoLinkages between inflation and eco-nomic growth in Serbia an ARDL bounds testing approachrdquoEngineering Economics vol 28 no 4 pp 401ndash410 2017

[96] N Kumar et al ldquoIs the tourismndashgrowth relationshipasymmetric in the Cook Islands Evidence from NARDLcointegration and causality testsrdquo Tourism Economicsvol 26 no 4 2019

[97] R R Kumar P J Stauvermann A Patel N Kumar andS Prasad ldquoExploring the nexus between tourism and outputin Cook Islands an ARDL bounds approachrdquo Social Indi-cators Research vol 128 no 3 pp 1085ndash1101 2016

[98] Global Terrorism Database ldquoPakistan profilerdquo 2017 httpswwwstartumdedugtdsearchResultsaspxsearchPakistanampsax0ampsay0

[99] Z Khan et al ldquoConsumption-based carbon emissions andtrade nexus evidence from nine oil exporting countriesrdquoEnergy Economics vol 89 pp 1ndash13 2020

[100] Z Khan et al ldquoConsumption-based carbon emissions andinternational trade in G7 countries the role of environ-mental innovation and renewable energyrdquo Science of NeTotal Environment vol 730 pp 1ndash10 2020

[101] D A Dickey and W A Fuller ldquoDistribution of the esti-mators for autoregressive time series with a unit rootrdquoJournal of the American Statistical Association vol 74no 366a pp 427ndash431 1979

[102] P C B Phillips and P Perron ldquoTesting for a unit root in timeseries regressionrdquo Biometrika vol 75 no 2 pp 335ndash346 1988

[103] G Elliott T J Rothenberg and J H Stock ldquoEfficient tests foran autoregressive unit rootrdquo Econometrica vol 64 no 4pp 813ndash836 1996

[104] D Kwiatkowski et al ldquoTesting the null hypothesis of sta-tionarity against the alternative of a unit root how sure arewe that economic time series have a unit rootrdquo Journal ofEconometrics vol 54 no 1-3 pp 159ndash178 1992

[105] M H Pesaran Y Shin and R J Smith ldquoBounds testingapproaches to the analysis of level relationshipsrdquo Journal ofApplied Econometrics vol 16 no 3 pp 289ndash326 2001

[106] P C B Phillips and B E Hansen ldquoStatistical inference ininstrumental variables regression with I(1) processesrdquo NeReview of Economic Studies vol 57 no 1 pp 99ndash125 1990


[107] S Johansen and K Juselius ldquoMaximum likelihood estima-tion and inference on cointegrationmdashwith applications tothe demand for moneyrdquo Oxford Bulletin of Economics andStatistics vol 52 no 2 pp 169ndash210 1990

[108] M Y Malik et al ldquoSymmetric and asymmetric impact of oilprice FDI and economic growth on carbon emission inPakistan evidence from ARDL and non-linear ARDL ap-proachrdquo Science of Ne Total Environment vol 726 pp 1ndash172020

[109] A W Gregory and B E Hansen ldquoResidual-based tests forcointegration in models with regime shiftsrdquo Journal ofEconometrics vol 70 no 1 pp 99ndash126 1996

[110] A Hatemi-J ldquoTests for cointegration with two unknownregime shifts with an application to financial market inte-grationrdquo Empirical Economics vol 35 no 3 pp 497ndash5052008

[111] Z Khan et al ldquoNatural resource abundance technologicalinnovation and human capital nexus with financial devel-opment a case study of Chinardquo Resources Policy vol 65pp 1ndash13 2020

[112] Z Khan et al ldquoe impact of technological innovation andpublic-private partnership investment on sustainable envi-ronment in China consumption-based carbon emissionsanalysisrdquo Sustainable Development pp 1ndash13 2020

[113] D Maki ldquoTests for cointegration allowing for an unknownnumber of breaksrdquo Economic Modelling vol 29 no 5pp 2011ndash2015 2012

[114] J Clemente A Montantildees and M Reyes ldquoTesting for a unitroot in variables with a double change in the meanrdquo Eco-nomics Letters vol 59 no 2 pp 175ndash182 1998

[115] E Zivot and D W K Andrews ldquoFurther evidence on thegreat crash the oil-price shock and the unit-root hypoth-esisrdquo Journal of Business amp Economic Statistics vol 20 no 1pp 25ndash44 2002

[116] G S Naufal and I H Genc ldquoStructural change in MENAremittance flowsrdquo Emerging Markets Finance and Tradevol 51 no 6 pp 1175ndash1178 2015

[117] G Tariq et al ldquoTrade liberalization FDI inflows economicgrowth and environmental sustanaibility in Pakistan andIndiardquo Journal of Agriculture and Environment for Inter-national Development (JAEID) vol 112 no 2 pp 253ndash2692018

[118] W Easterly ldquoe political economy of growth without de-velopment a case study of Pakistanrdquo Paper for the AnalyticalNarratives of Growth Project pp 1ndash53 Kennedy School ofGovernment Harvard University Cambridge MA USA2001

[119] R Haq U Zia and G Arif ldquoGovernance and pro-poorgrowth evidence from Pakistanrdquo Ne Pakistan DevelopmentReview e Pakistan Development Review vol 45 no 4IIpp 761ndash776 2006

[120] Reporters without Borders ldquoWorld press freedom indexrdquo2019 httpsrsforgenranking

[121] I B Naqvi ldquoNational innovation system in a least developingcountry the case of Pakistanrdquo International Journal ofTechnology Policy and Management vol 11 no 2pp 139ndash154 2011

[122] e Fund for Peace ldquoFragile state indexrdquo 2006 httpsfragilestatesindexorgexcel

[123] C S Saba and N Ngepah ldquoA cross-regional analysis ofmilitary expenditure state fragility and economic growth inAfricardquo Quality amp Quantity vol 53 no 6 pp 1ndash31 2019

[124] J Lopez-Calix and I Touqeer Revisiting the Constraints toPakistanrsquos Growth FAQ Atlanta GA 2013

[125] N Aziz and U Khalid ldquoArmed conflict military expensesand FDI inflow to developing countriesrdquo Defence and PeaceEconomics vol 30 no 2 pp 238ndash251 2019

[126] PakistanToday Graduate Brain Drain An Alarming ExodusPakistanToday Lahore Punjab Pakistan 2015 httpswwwpakistantodaycompk20150307graduate-brain-drain-an-alarming-exodus

[127] Pakistan Economic Survey Annex-IV Impact of War inAfghanistan and Ensuing Terrorism on Pakistanrsquos EconomyPakistan Economic Survey Lahore Punjab Pakistan 2016

[128] Government of Pakistan Pakistan Vision 2025 One Nation-One Vision Ministry of Planning Development amp ReformPlanning Commission Islamabad Pakistan 2014 httpswwwpcgovpkwebvision

[129] United Nations Development Programme ldquoGoal 9 industryinnovation and infrastructurerdquo United Nations Develop-ment Programme New York NY USA 2019 httpswwwundporgcontentundpenhomesustainable-development-goalsgoal-9-industry-innovation-and-infrastructurehtml

[130] e World Bank Worldbank Development Indicators- Grossdomestic savings ( of GDP) e World Bank WashingtonDC USA 2019 httpsdataworldbankorgindicatornygdstotlzs

[131] K You and O H Solomon ldquoChinarsquos outward foreign directinvestment and domestic investment an industrial levelanalysisrdquoChina Economic Review vol 34 pp 249ndash260 2015

[132] R L Brown J Durbin and J M Evans ldquoTechniques fortesting the constancy of regression relationships over timerdquoJournal of the Royal Statistical Society Series B (Methodo-logical) vol 37 no 2 pp 149ndash163 1975

[133] P Saikkonen ldquoEstimation and testing of cointegrated sys-tems by an autoregressive approximationrdquo EconometricNeory vol 8 no 01 pp 1ndash27 1992

[134] J Y Park ldquoCanonical cointegrating regressionsrdquo Econo-metrica vol 60 no 1 pp 119ndash143 1992

[135] J L Carrion-i-Silvestre D Kim and P Perron ldquoGLS-basedunit root tests with multiple structural breaks under both thenull and the alternative hypothesesrdquo Econometric Neoryvol 25 no 6 pp 1754ndash1792 2009


also encompasses military involvement in politics anddemocratic accountability which increase corruption anddecrease confidence of the investors and FDI inflows [7ndash9]Besides it entails the aspects of freedom of expression freemedia and press political rights and civil liberties [10 11]

Peace is at the heart of sustainable development SDG-16of the United Nations emphasizes the vital role of peace inbringing sustainable development [12 13] A peacefulstable and terrorism-free environment of a country is ofgreat importance for smooth business and market opera-tions foreign direct investment (FDI) inflows and economicgrowth On the other hand terrorist activities adverselyaffect the economy of a country by decreasing confidence ofinvestors and FDI inflows Further it also damages theessential infrastructure causes financial instability higheconomic cost and increases counterterrorism costs[14ndash16]

Previous studies reveal that investment in RampD ex-penditures and educational resources and patent protectionencourage the innovation process [17] General wisdomsuggests that these views hold because investment in suchelements accelerates the pace of innovation According toEge and Ege [17] however it is improper to assume thatpatent protection and subsidies in RampD are sufficient to spurinnovation Innovation is a multifaceted and complexphenomenon [18] therefore several institutional politicaland social conditions lead to different responses of inno-vation [19] Economic factors are not the only determinantsof innovation and that noneconomic factors can also affectinnovation However past research is extensively focused oneconomic factors in studying the phenomenon of innova-tion but the noneconomic and institutional factors havereceived scarce research attention in the extant literatureFor instance at the macrolevel few studies have investigatedthe relationship between political instability regulatoryquality government effectiveness control of corruption andinnovation [20 21] Voice and accountability is also anessential dimension of the governance structure and theempirical relationship between voice and accountability andinnovation is still unexplored specifically in laggard econ-omies Similarly past studies reported that terrorism has anadverse impact on growth [22] FDI inflows [23] andtourism [24] However the empirical relationship betweenterrorism and innovation is overlooked in the literatureerefore the relationship between voice and account-ability terrorism and innovation is an important researchgap and this study aims to fill it Besides the past researchreports that savings can improve resource allocation andboost technological innovation [25] Likewise the physicalinfrastructure is essential as it attracts FDI inflows enhanceseconomic growth and retains foreign firms talent andentrepreneurs [26] ese factors (savings and infrastruc-ture) can also influence innovation Considering thisbackground this study hypothesizes the four relationshipsIn sum the impacts of these mix of variables (ie consid-ering these variables in a single econometric model) oninnovation is unexplored and this study aims to explore it

Practitioners report that the sound body of innovationliterature focused primarily on developed and fast-growing

economies and the low-income economies have receivedless research attention [27 28] Scholars report that laggardeconomies have the lowest level of patents per millionperson [29] In this regard the present study intends toextend the research on innovation in laggard economies Toserve this purpose this study specifically focuses on Pak-istani dynamics to study the causes of its low innovationcapability Similarly the ample body of innovation studieshas focused on cross-country evaluation [21 29] Practi-tioners are in the view that cross-country studies provideonly a general understanding of the relationship betweenvariables [27 30] erefore detailed and comprehensiveimplications for each country cannot be drawn from suchresults [31 32] Studying innovation in laggard economiescould be an exciting and essential context which can help todraw policy formulations for laggard states e lack ofresearch evidence regarding laggard countries and non-economic factors motivates us to investigate reasons for lowinnovation performance of Pakistanis research is distinctfrom other studies in innovation domain in the followingways First it focuses its investigation in a laggard economywhich is an unexplored area of study Second it examinesthe impacts of voice and accountability terrorism infra-structures and savings upon innovation in a laggardeconomy (Pakistan) by employing robust cointegrationapproaches (ARDL and Maki) and several other econo-metric approaches (Johansen cointegration test dynamicordinary least square fully modified ordinary least squareand canonical cointegration regression) which have notbeen employed in this particular research context To sumthe econometric model (set of variables) and estimationeconometric methodologies are distinctive which have notbeen considered before in this particular research contexte main contributions of this study are summarized asfollows (i) it confirms that low voice and accountability is ahurdle in the innovation path (ii) it validates the negativerelationship between terrorism and innovation (iii) findingsshow that low savings is an obstacle in the innovation path oflaggard economies (iv) finally findings reveal that the in-adequate infrastructure has adverse impacts on innovation

2 Review of Literature andHypothesis Development

21 Voice and Accountability and Innovation Quality of thegovernance structure is essential for economic developmentand sound economic outcomes [5 33] Voice and ac-countability is an essential dimension of a good governancestructure [6] ldquoA higher level of voice and accountabilityshould mean the presence of the needed climate for thegrowth of various associations and civil society groups andguarantee more strength to business associations whichshould as the literature on NIS suggests lead to a betterinnovational systemrdquo [5] Voice and accountability hasseveral dimensions For example it include the aspects ofmilitary involvement in democratic accountability andpolitics [7] A higher level of military involvement in politicscan encourage armed opposition generate corruption andcreate an uneasy environment for foreign investors [9]




































(2)


4 Methodology




Δ ln INNt a0 + 1113944l


l

i1ciΔVAAtminusi

+ 1113944l


l

i1eiΔ lnINFtminusi

+ 1113944l




(3)






Δ ln INNt δ0 + 1113944l


l

i1δ2iΔVAAtminusi

+ 1113944l


l


+ 1113944l


(4)




xt μ + 1113944r



xt μ + 1113944r


r



xt μ + 1113944r


r



xt μ + 1113944r

i1μiDit + δt + 1113944

r

i1δitDit + 1113944

r






























Estimatedmodel


















ndash15

ndash10

ndash5

0

5

10

15


CUSUM5 significance

Figure 1 CUSUM

ndash04

ndash02

00

02

04

06

08

10

12

14



Figure 2 CUSUMq





51 Robust Checks


ndash15

ndash10

ndash05

00

05

10

15
































Data Availability




Acknowledgments


References















































































































































































(2)


4 Methodology




Δ ln INNt a0 + 1113944l


l

i1ciΔVAAtminusi

+ 1113944l


l

i1eiΔ lnINFtminusi

+ 1113944l




(3)






Δ ln INNt δ0 + 1113944l


l

i1δ2iΔVAAtminusi

+ 1113944l


l


+ 1113944l


(4)




xt μ + 1113944r



xt μ + 1113944r


r



xt μ + 1113944r


r



xt μ + 1113944r

i1μiDit + δt + 1113944

r

i1δitDit + 1113944

r






























Estimatedmodel


















ndash15

ndash10

ndash5

0

5

10

15


CUSUM5 significance

Figure 1 CUSUM

ndash04

ndash02

00

02

04

06

08

10

12

14



Figure 2 CUSUMq





51 Robust Checks


ndash15

ndash10

ndash05

00

05

10

15
































Data Availability




Acknowledgments


References















































































































































Δ ln INNt δ0 + 1113944l


l

i1δ2iΔVAAtminusi

+ 1113944l


l


+ 1113944l


(4)




xt μ + 1113944r



xt μ + 1113944r


r



xt μ + 1113944r


r



xt μ + 1113944r

i1μiDit + δt + 1113944

r

i1δitDit + 1113944

r






























Estimatedmodel


















ndash15

ndash10

ndash5

0

5

10

15


CUSUM5 significance

Figure 1 CUSUM

ndash04

ndash02

00

02

04

06

08

10

12

14



Figure 2 CUSUMq





51 Robust Checks


ndash15

ndash10

ndash05

00

05

10

15
































Data Availability




Acknowledgments


References

































































































































































Estimatedmodel


















ndash15

ndash10

ndash5

0

5

10

15


CUSUM5 significance

Figure 1 CUSUM

ndash04

ndash02

00

02

04

06

08

10

12

14



Figure 2 CUSUMq





51 Robust Checks


ndash15

ndash10

ndash05

00

05

10

15
































Data Availability




Acknowledgments


References


























































































































































ndash15

ndash10

ndash5

0

5

10

15


CUSUM5 significance

Figure 1 CUSUM

ndash04

ndash02

00

02

04

06

08

10

12

14



Figure 2 CUSUMq





51 Robust Checks


ndash15

ndash10

ndash05

00

05

10

15
































Data Availability




Acknowledgments


References
















































































































































51 Robust Checks


ndash15

ndash10

ndash05

00

05

10

15
































Data Availability




Acknowledgments


References


































































































































































Data Availability




Acknowledgments


References













































































































































impactsofvoiceandaccountabilityuponinnovationinpakistan ... · (control of corruption, political...

Documents