Abstract

This paper examines the causal relationship between industrial growth and technological innovation of India. The study focused on whether or not industrial growth leads technological innovation in India. The methodology applied in the paper is the standard Granger causality tests and Toda- Yamamoto test for causality to time series annual data covering the period 1968 to 2016. The empirical findings reveal the absence of a long-run equilibrium relationship between the variables but there exists uni-directional short-run Granger causality running from industrial growth to technological innovation without any feedback effect. The results are confirmed by crosschecking with the Toda-Yamamoto causality approach.The findings of this study support the “demand-led” or “market-pull” approach to innovation. Therefore, the study suggests an integrated innovative-industrial policy thereby increasing the industrial growth of a developing country like India.

Keywords: Innovation, Patents, Industrial growth, Causality, Co-integration, India