American International Journal of Social Science

The Innovation and Economic Growth: An Estonian Case in Point
Gediminas Mačys

Abstract
A new race for global economic advantage is under way. It is a fierce race thatonly the most innovative nations will win. The first paper in series “The innovation and economic growth” has clearly denoted the leader role of Estonia in raising the investments in R&D sector and boosting their innovative export-oriented production. The present paper is a second in series and presents anonlinear regressive analysis of complete chain of innovation driving factors, starting from the investments in R&D and leading up to the boost of innovative export-oriented production in Estonia. The dynamic structures and time-series of outstanding driving factors arepresented to disclose the Estonian leadership in Baltic States. The main conclusions and suggestions are presented. The first conclusion is that a high-tech R&D based innovation matters at the later stages of economic development of country, when there are barely both factors of competitiveness and learning that allow for completing the “catchup” processes clearly observed in Estonia.The next is that the actual regressive analysis clearly shows that the government-backed R&D policies retaining the growing levels of main innovation driving factors are highly effective and warrant a coming intensegrow of production underconsideration. Actually, the coming level of Estonian innovative export-oriented production was econometrically estimated to grow at 15.2% in 2014 ever after. The practical implication of these findings for local companies are that in order to improve performance they must avoid narrowly focusing on R&D, but must invest more in capabilities to commercialize technologies resulting from the exogenous R&D.The suggestion to continue the regressive analysis on the grounds of total factor production, product market competition and concentration of the sector, and knowledge diffusion in productivity improvements is on the agenda of forthcoming research.

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