Internet Penetration and National Innovation Capacities: Evidence from Worldwide Panel Data Analysis

The Internet and Communication Technologies (ICTs) has profoundly reshaped world development and our life style. Despite that there are amounts of literature concerning with the effects of ICTs on development in different fields, the roles of ICTs in innovation are less explored. To fill this gap, this paper investigates the effect of the Internet penetration on national innovation using a cross-national panel data of 157 countries from 1995 to 2014. We find that the Internet penetration has a significant but decreasing promotion effect on innovation, which is robust to various model specifications and the changes in variable measures. A one-year lagged effect is also observed. Estimation with the panel data threshold effect model further shows that even if the effects of the Internet penetration on innovation can bypass the limitations of a low level of R&D expenditure, education, urbanization and freedom of the press, it cannot bypass the limitations of population density. Our study provides evidence on promoting national innovation especially for developing countries through ICTs and reinforces the importance of geographic proximity for innovation in the Internet age.