INNOVATION AND ECONOMIC GROWTH: HOW STRONG IS THE NEXUS? Example of the German economy

The uncertain global surroundings of an increasingly strong and more complex competition make the world economies face new challenges and stress the importance of innovations which are crucial in achieving competitiveness. Historical development shows that the appearance of new discoveries and the application of innovations result in considerable economic growth, especially in the second half of the 20th century, which leads to the need for research into the interrelationship between innovations and economic growth. The main work hypothesis of the research in this paper is that there is a long-term connection between innovations and economic growth while the aim of the research is to determine how strong this connection is. Research is done on the example of Germany, since this is a country at the top of the scale for the amount of investments in research and development and is today one of the most developed and most competitive countries in the world. The interdependence of the selected variables is analyzed through econometric regression models and the VECM model. It can be concluded that in the case of German economy there is a positive correlation between the observed variables and that innovations significantly affect economic growth.