The Effect of Innovations on Unemployment in Developing Countries

Answering the fundamental question of whether technological progress can lead to unemployment has always been one of the most challenging issues in economics. In this regard, the present study investigates the effect of technology-based innovations (including process innovation and product innovation) on unemployment using panel data techniques (random effects model) and data from a sample of developing countries during the period 2008-2018. To this end, the number of patents registered is considered as an index of process innovation and the ratio of research and development (R&D) expenditure to GDP is considered as an index of product innovation. Moreover, GDP per capita, inflation and trade openness are included in the model as control variables. The results obtained from the estimation of the panel model show that both the growth of process innovation and the growth of product innovation reduce unemployment. In addition, the empirical results indicate that GDP per capita and trade openness have a negative and significant effect on unemployment, but the effect of inflation on unemployment is not statistically significant. Overall, the findings of this study have important policy implications for dealing with the problem of unemployment in developing countries through increased investment in R&D and stronger patent protection.