An Econometric Study of the Contribution of Innovation to Economic Growth and Improving the Quality of Life: A Case Study of Arab Countries (1990–2021)

Abstract

This study investigates the contribution of innovation outputs to economic growth and the Quality of Life (QoL) in a sample of Arab countries from 1990 to 2021. Amidst structural paradoxes in Arab economies, the research addresses whether innovation effectively translates into sustainable development and improved living standards. The methodology employs a dual-stage econometric approach: a dynamic panel Vector Error Correction Model (VECM) to analyze growth dynamics and a static panel Fixed Effects Model (FEM) to evaluate QoL determinants.

The empirical results reveal a "structural paradox" in the Arab region. Knowledge and technology outputs exhibit a positive impact on GDP per capita in the short run (+17.6%) but turn negative in the long run (-2.8%). This decline suggests a "consumption-based" technological structure and a failure to localize production. Conversely, creative outputs show a short-term negative impact (-26.3%) due to initial resource misallocation but become a significant driver of sustainable growth in the long term (+9.18%).

Regarding social well-being, the study finds that quantitative spending on education and Research and Development (R&D) negatively impacts the QoL Index, highlighting deep-seated spending inefficiencies. However, the Human Development Index (HDI) and the density of research personnel show strong positive correlations with QoL. These findings suggest that qualitative investment in human capital, rather than mere financial expenditure, is the true catalyst for societal welfare.

The study concludes that Arab nations must restructure their national innovation systems to bridge the "localization gap". Transitioning from technology consumption to local production and reforming educational outputs to meet market needs are essential steps to ensure that innovation yields tangible economic and social returns.