Causal Nexus between Technological Innovation, Financial Innovation and Economic Growth: The case of Sub-Saharan Africa Countries

The relationships among technological innovation, financial innovation, and economic growth have received much attention in recent literature. However, there are potential gaps like the innovation-growth nexus that existing empirical studies have not rigorously examined. This study explores co integration relationships and Granger causality nexus in a trivariate framework among the three variables. Using three measures of financial innovation and employing a panel vector autoregressive model, we study 45 Sub-Saharan Africa countries over the period of 1990–2018. The results show a long-run equilibrium relationship among all three variables, no matter which indicator of financial innovation is used. We also discover a wide range of remarkable causal links among the variables. Our key result is that unlike in the long-run, there is no causality running from both technological innovation and financial innovation to economic growth in the short run. The argument that technological innovation and financial innovation spur economic growth is supported in our study, at least in the long run. The latter result may not be surprising, given that the countries considered in this study are relatively less developed countries (LDCs) from Sub-Saharan Africa. Hence, further innovation improvement may play a statistically significant role in spurring further economic growth. We suspect that results may be different for emerging and developed countries with a well-developed and advanced innovation system. This remains an open area for future research.