The Crossover Effect of Financial Development and Good Governance on Innovation in Selected Countries of at the Efficiency-Driven Stage

Innovation is the result of the activity and interaction of a network of public and private institutions operating in a country that enable the creation, transfer, absorption, change, dissemination, and use of beneficial knowledge. Therefore, the present study enters into the discussion of innovation with a systemic approach and tries to crossover effect of financial development and institutional indicators of good governance (voice and accountability, political stability and absence of violence, government effectiveness, regulatory quality, and rule of law and control of corruption) on innovation in 21 selected countries to focus on efficiency during the period 2007-2018. The research model was estimated using panel data and the generalized moment method (GMM). The results showed that the crossover effect of financial development and all indicators of good governance on innovation is positive and significant. Also, the distinct effect of financial development and good governance indicators on innovation is positive and significant. However, the estimated coefficient of individual effect is smaller than the estimated coefficient of their cross-section. Furthermore, the effect of other variables of the model, accumulation of research and development capital, human capital, intellectual property rights, population, and foreign direct investment, on innovation has been positive and significant.