Innovation, Research and Development, and Economic Growth in India: Long-Run and Short-Run Evidence

Abstract

This study examines the short-run and long-run relationships between technological innovation and economic growth in India, while considering research and development investment, human capital, and trade openness as complementary determinants. The analysis emphasizes technological progress, knowledge accumulation, innovation, and human capabilities as central mechanisms underlying persistent productivity growth. Annual time-series data covering India from 2000 to 2025 are obtained from the World Bank’s World Development Indicators. Economic growth is measured by annual gross domestic product growth, while technological innovation, research and development investment, and human capital constitute the principal explanatory variables, with trade openness included as a control variable. The empirical analysis employs Augmented Dickey–Fuller and Phillips–Perron unit-root tests, followed by the autoregressive distributed lag bounds-testing approach to examine long-run equilibrium relationships and an error-correction specification to capture short-run dynamics. The bounds test provides evidence of a long-run relationship among economic growth and the explanatory variables. The long-run estimates indicate that technological innovation, research and development investment, human capital, and trade openness are positively and statistically significantly associated with economic growth. In contrast, the short-run estimates reveal heterogeneous effects across the explanatory variables. Technological innovation exhibits a negative and statistically significant short-run association with economic growth, whereas research and development investment and human capital are positively associated with short-run economic performance. The contemporaneous effect of trade openness is statistically insignificant, while its lagged effect is positive and significant, indicating that the growth-related benefits of international integration may emerge with a temporal lag. The negative and statistically significant error-correction term confirms adjustment toward the long-run equilibrium following short-run disturbances. Diagnostic tests indicate no serious evidence of multicollinearity, heteroskedasticity, serial correlation, functional-form misspecification, or non-normal residuals. The findings underscore the importance of coordinated investment in technological capabilities, research and development, human capital, and productive international integration for sustaining economic growth in India.