Do international capital flows, institutional quality matter for innovation output: the mediating role of economic policy uncertainty

The determinants of innovation output in empirical literature have been extensively investigated by considering diverse sets of variables. Still, the impact of economic policy uncertainty on innovation output is yet to unleash. The study investigates the association between EPU and innovation output to mitigate the existing research gap, considering a panel of 22 countries over 1997-2018. The study employs a dynamic panel quantile regression and system-GMM specification causality test to discover elasticity and directional association both in the long and short run. Study findings disclosed negative statistically significant effects running from EPU to innovation output except innovation measured by R & D.; moreover, institutional quality and FDI expose positive and statistically significant association with innovation output. In directional causality, unidirectional causality runs from EPU and FDI to innovation output, whereas bidirectional causality establishes between institutional quality and innovation output.

Automated summary

This study explores the impact of economic policy uncertainty (EPU) on innovation output, identifying a negative relationship between EPU and innovation output, while institutional quality and foreign direct investment (FDI) show positive associations with innovation output. Unidirectional causality is found from EPU and FDI to innovation output, with bidirectional causality between institutional quality and innovation output.