This paper examines the relationship between labour productivity growth
in non-traditional sectors and "innovation policy" for a cross-section
of countries. Innovation policy is characterised by investments in
tertiary education and research and development as a percentage of Gross
Domestic Product (GDP), the freedom in the business environment, as well
as overall government effectiveness. Our results confirm the economic
convergence between richer and poorer countries. We could show a
significant positive effect of the interaction between government
effectiveness and government expenditures in tertiary education as a
percent of GDP on labour productivity growth in non-traditional sectors.
Also, for developing countries, a positive and significant relationship
between the growth variable and effective research and development
expenditures was observed. We could not uncover a relationship between
other innovation policies and labour productivity growth.
Non-traditional sector labour productivity growth in the oil-rich
Arabian Gulf countries was observed to be consistently slower than
Western countries. Higher oil prices appear to crowd out innovation in
oil-rich countries while stimulating innovation in oil-importing
Keywords: Innovation policy, labour productivity growth, technological change, government effectiveness, developing countries, Arabian Gulf countries.
JEL Classification: O2, O3, O38, O43, O47