Digitalization of economy is the key factor behind fourth industrial revolution: How G7 countries are overcoming with the financing issues?

Abstract

Abstract The digitalization role in economy has increased over the years, particularly after the arrival of the industrial revolution 4.0. This paper aims to examine the impact of digitalization in the economy on technological innovation in the presence of business financed R&D expenditures, income, and financial risk for G7 economies for the time period 1990 to 2017. This endeavor uses recently developed econometric approaches, which are superior to traditional first-generation econometric methods. The results show a long-run stable relationship between technological innovation and its determinants (such as digital economy, bank financing R&D expenditure, GDP, and financial risk). Moreover, the digital economy, bank financing R&D expenditures, and financial risk are important factors responsible for technological innovation in G7 countries. This study has meaningful policy implications for decision-makers in designing their policies related to the digital economy, bank financing, and technological innovation in G7 countries. The cost of innovation is significantly high, for which bank finance is sufficiently required. However, due to the high financial risk firms, banks often reluctant to finance innovative ideas. Hence, for nurturing technology through digitalization in economy and business financed R&D expenditure, financial risk must be minimized.