Technological Innovation Impact on Dynamics of Aggregate Income

in Digital Transformation of the Economy

Gulnara Nasimovna Khadiullina

, Naila Rashidovna Shevko

, Gulnaz Rashitovna Sibaeva

and Elmira Nailevna Khisamutdinova

Leninogorsk Branch of the Kazan National Research Technical University named after A.N. Tupolev, Department of

Economics and Management, Kazan, Russia

Department of Criminal Law Disciplines, Kazan Branch of the Russian State University of Justice, Kazan, Russia

Department of Informatics and Information Management Systems, Kazan State Power Engineering University, Kazan,

Russia

Department of Economic Security and Taxation, Kazan (Volga Region) Federal University, Kazan, Russia

Keywords: Economic growth, neoclassical models of economic growth, technological innovation, labor productivity,

gross regional product, gross domestic product, global innovation index.

Abstract: The study goal is to study the role of technological innovation in providing upward dynamics of the aggregate

indicators of the national economy as a whole and its constituent regional entities in the context of the end-

to-end digitalization of economic processes. The study objectives are defined in view of its goal and consist

in identifying the role of technological innovation in increasing labor productivity as a source of total income

growth, as well as in conducting an empirical test of the thesis on the dependence of labor productivity and

gross regional product (GRP) on investment in innovative projects (on the example of the regions of the Volga

Federal District). The methodological basis of the study is the provisions of neoclassical theories of economic

growth, as well as the Cobb-Douglas-Tinbergen production function. As a result of the study, it was concluded

that there is a direct relationship between investment in innovative projects and the GRP dynamics, which is

confirmed by the results of statistical data analysis on the Republic of Tatarstan and the Nizhny Novgorod

region. The revealed dependence is determined by the significant impact of technological innovations on labor

productivity in traditional economic activity. It is concluded that it is necessary to study the role of labor

productivity in providing positive dynamics of indicators of innovative spheres of economic activity, as well

as in changing the employment structure and unemployment rate.

1 INTRODUCTION

The global economic crisis caused by the pandemic

coronavirus infection and the restrictive measures

taken by the governments of most countries to

prevent its spread has brought the problem of finding

endogenous sources of progressive macroeconomic

dynamics, on the efficiency of which depends on the

possibility of transition from recession to recovery

economic growth. In contrast to the situations of

deteriorating macroeconomic conditions that have

taken place in the world economy in previous periods

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of its development, the crisis phenomena of 2020 are

characterized by a global nature and affect all spheres

of human activity (Voskoboynikov, I. B., Baranov, E.

F., Bobyleva, K. V., Kapeliushnikov, R. I.,

Piontkovski, D. I., Roskin, A. A., Tolokonnikov, A.

E., 2021). The crisis is taking place under the

conditions of the fourth industrial revolution

(Industry 4.0), which began in the 2010s and

predetermined the further development of the post-

industrial technical and economic order, caused the

transformation of the configuration of the economic

cycle and simultaneously led to an increase in the

124

Khadiullina, G., Shevko, N., Sibaeva, G. and Khisamutdinova, E.

Technological Innovation Impact on Dynamics of Aggregate Income in Digital Transformation of the Economy.

DOI: 10.5220/0010694500003169

In Proceedings of the International Scientiﬁc-Practical Conference "Ensuring the Stability and Security of Socio-Economic Systems: Overcoming the Threats of the Crisis Space" (SES 2021),

pages 124-128

ISBN: 978-989-758-546-3

level of global threats. It initiated the acceleration of

processes of end-to-end implementation of

information and communication technologies in

innovative and traditional sectors of the economy, as

well as in the system of public administration, the

wide spread of remote formats of employment and

service provision, the formation of value chains using

information platforms and “big data” technologies,

etc. Under these conditions, theoretical and

methodological approaches to the interpretation of

economic growth sources and to the tools

composition for realizing their potential require

further development. Understanding the growing role

of high-tech sectors of the economy and human

capital in aggregate product formation, as well as

knowing the reasons and consequences of increasing

the level of uncertainty of environmental factors for

making effective management decisions, will allow to

develop effective anti-crisis measures and justifying

the tools for transition to sustainable economic

growth.

The scientific hypothesis of this study is the

assumption that innovation is becoming an

endogenous source of economic growth and the

growing role of investment in innovative projects.

The study goal is to identify the elements of impact

mechanism of technological innovation on the growth

rate of aggregate income of the state and its

constituent regional entities. In accordance with the

goal, the following tasks are solved: identification of

the role of technological innovation in increasing

labor productivity in traditional and innovative areas

of economic activity as a source of growth of

aggregate income; empirical testing of the thesis

about the labor productivity dependence on

investment in innovative projects (on the example of

the regions of the Volga Federal District).

The economic growth problems have traditionally

been at the center of researchers' attention, regardless

of their affiliation with economic schools and

currents. In accordance with the scientific hypothesis

of the study, as its theoretical basis, the concepts

devoted to the analysis of innovative processes

impact on the directions and rates of increase in the

main macroeconomic indicators are considered.

It is advisable to distinguish four groups of

theoretical models (Kaneva, M. A., Untura, G. A.,

2017) that have a great epistemological potential for

explaining the innovation and investment factor in

ensuring total income growth. The first group of

macroeconomic models includes: R. Solow's

neoclassical model of exogenous growth (Solow, R.,

1957), which is based on the use of the production

function and proceeds from the recognition of

scientific and technological progress as an external

factor ensuring continuous growth of output per

employee; P.M. Romer's growth model (Romer, P.

M., 1986), which recognizes the endogenous nature

of technological progress and considers knowledge as

a factor of non-decreasing return on capital; G.M.

Grossman's and E. Helpman's three-sector model

(Grossman, G. M., Helpman, E., 1991), which

recognizes the key role of technological innovations

that compensate for the diminishing returns to

production factors, etc.

The second group of approaches to the

interpretation of the economic growth sources is

represented by models of innovation and includes:

linear models of innovation (McLaurin, W. R., 1953

and others); theories of innovation systems, taking

into account the composition of participants, the

content of their interactions and the composition of

regulatory institutions (B.-A. Lundvall. 1985, I. Yu.

Shvets, 2019 etc.); theories of innovation diffusion

(T. Hagerstrand, 1976, etc.); models of cyclic

innovation dynamics (N.D. Kondratiev, 1993, etc.).

Within the framework of the third group of works,

the validity of the above theoretical models was

confirmed using empirical material (testing of the

provisions of neoclassical models of economic

growth in the works of R.J. Barro and K. Sala-i-

Martin (Barro, R. J., Sala-i-Martin, X., 1995), the

model of the production function of knowledge by D.

Romer, 1990, etc.). The fourth group of works

includes the results of the spatial approach to the

innovation process explanation (the theory of

“growth poles” and “development axes” by J.

Budville 1961, etc.; the world-system concepts of I.

Wallerstein 1998, etc.), the theory of regional growth

P. Krugman, M. Fujita 1995 and others.

However, despite the existence of many works on

economic growth in relation to innovation, a number

of problem aspects remain unexplored adequately. A

number of provisions and conclusions reflecting the

relationship between innovation, investment and

dynamics of aggregate income require further

empirical verification. The regional aspect of

economic growth has not been adequately analyzed.

All this determines the need for further study of the

sources of progressive macroeconomic dynamics in

the context of changes in the role of innovation in

their composition and the nature of the technical and

economic structure.

Technological Innovation Impact on Dynamics of Aggregate Income in Digital Transformation of the Economy

125

2 MATERIALS AND METHODS

The statements and conclusions of the study are based

on the principles of neoclassical theory of economic

growth. In accordance with the scientific hypothesis

of the study, general scientific and special research

methods were used. In the course of empirical testing

of the formulated hypothesis, the standard Cobb-

Douglas-Tinbergen function was used, as well as data

published by the territorial bodies of the Federal State

Statistics Service, the global innovation index,

calculated by the World Intellectual Property

Organization in conjunction with Cornell University

and the international business school INSEAD.

Statistical data analysis was carried out using

correlation and regression analysis and the Darbin-

Watson test.

3 RESULTS AND DISCUSSION

Empirical data show that at present the rate of

technological change exceeds the growth rate of the

main macroeconomic indicators. In the early 2000s,

the GDP growth rate in developed countries was 2-3

percent per year, in the Russian Federation - 5-8

percent, after the financial crisis of 2007-2008, this

figure was 1.5-2 percent and 1.8 percent. respectively.

In 2020, the GDP of all developed countries declined

due to the COVID-19 coronavirus pandemic, despite

the continuation of significant technological changes.

As an indicator of the innovative activity of states, it

is advisable to use the Global Innovation Index,

which is calculated annually since 2007 (World

countries ranking by innovation index). The presence

of a direct relationship between the GDP value per

capita and the global innovation index confirms the

thesis that there is a relationship between economic

growth rates, technological change and innovation.

However, the presence of such a relationship does not

allow to draw an unambiguous conclusion about the

causal relationship between the growth rate of total

society income and the innovative activity of business

entities. It should be taken into account that the

innovation index is calculated on the basis of 82

indicators, which reflect numerous processes in

different phases of the innovation cycle, as well as the

state of innovation infrastructure facilities and

relevant institutions. They take into account

education quality, state of the regulatory framework,

level of development of information and

communication technologies, state of investment,

level of entrepreneurial activity, level of patent

protection of intellectual property, etc. Thus, the state

of innovation potential and the level of innovation

activity is determined not only by the amount of

private and public investment aimed at the

implementation of innovative projects, but also by the

state of instruments of their regulation, as well as the

innovation activity mechanism.

The innovation impact on economic growth is

expressed in the fact that their production and

implementation in economic processes leads to an

increase in productivity, which is found in an increase

in the output of traditional production factors and (or)

in a decrease in the volume of their consumption.

However, the analysis of statistical data reflecting the

labor productivity dynamics shows that at a certain

development stage of post-industrial society, the

growth rate of labor productivity begins to decline.

This is due to changes in the sectoral structure of the

economy, in which the dominance of industry as a

result of deindustrialization processes is replaced by

the predominance of services, which do not provide

significant increases in productivity despite the

technological innovation development and

implementation. For example, the self checkout

introduction in supermarkets leads to a reduction in

customer time and to a reduction in sales staff without

changes in labor productivity. At the same time, the

processes of mass production automation and

robotization, which marked the beginning of the third

industrial revolution, caused a significant increase in

the volume of output produced by workers per unit of

time.

It should be taken into account that traditional

approaches to the labor productivity measurement

cannot be used to assess the innovation impact on the

effectiveness of the use of labor resources in service

sector. To reflect in the official statistics the

qualitative benefits that consumers of services

receive, they should be monetized. The latter is

associated with difficulties in making calculations.

So, for example, the answer to the question about the

monetary measurement of benefit in monetary terms,

which is received by buyers of goods in supermarket

using the services of self checkouts, seems to be

ambiguous.

At the level of an individual enterprise,

interdependence of innovations and progressive

dynamics of indicators of financial and economic

activity takes place (Akhmetova, I., Tyfetylov, A.,

Tamakchi, A., Khadiyllina, G. and Derevianko, O.,

Syed Z., 2018). Technological innovation lead to the

creation of added value by increasing the efficiency

of available resources and expanding markets, which

initiates companies to make additional investments in

SES 2021 - INTERNATIONAL SCIENTIFIC-PRACTICAL CONFERENCE "ENSURING THE STABILITY AND SECURITY OF

SOCIO - ECONOMIC SYSTEMS: OVERCOMING THE THREATS OF THE CRISIS SPACE"

126

innovative projects. At the macroeconomic level, the

benefit of increasing the diversity of choice of

economic agents, the absence of intermediaries, the

availability of information on characteristics of the

goods offered and their complements, provided by the

innovation introduction, is reflected in the growing

surplus of a consumer. However, in order to apply the

indicators included in the traditional system of

national accounts, the growing level of customer

satisfaction should acquire a monetary value.

Constant monitoring of information available on

various platforms increases transparency and

encourages competition, which helps prevent

shortages and surpluses in industry markets. Thus, the

supply of innovation is growing exponentially due to

the development of information platforms that

connect producers and consumers of services, the

availability of information, and the lower costs of

developing and implementing information and

communication technologies. At the same time, it is

necessary to take into account the structural changes

in the labor market, which are associated with the

disappearance of professions connected with the

mechanical repetition of the same type of operations

with an increase in demand for carriers of unique

competencies. The latter determines the need to

review the content of educational programs and

technologies used in the process of training personnel

for the modern economy.

The regionalization of innovative development

programs is updated in the development of socio-

economic development strategies aimed at

accelerating innovation processes in the constituent

entities of the Russian Federation. The analysis of the

innovative development of the regions of the Volga

Federal District (Nikonorov, S. M., Solovyova, S. V.,

Sitkina. K. S., 2020) showed a relatively higher level

of innovation activity in the Republic of Tatarstan and

Nizhny Novgorod region. In this regard, it is of

interest to study the impact of innovation and

investment potential of these regions on the socio-

economic development of the subjects of the Russian

Federation. This study is implemented with the help

of production functions reflecting the correlation

between relative indicators of labor productivity and

investment in fixed capital, as well as research and

development expenditures. For the purpose of this

study, the standard Cobb-Douglas-Tinbergen

function is used (1):

𝐴

𝐿𝑃 

𝐴

∙𝑆𝐼





∙𝑈𝐶







(1)

where α, β, and A – statistically estimated model

parameters based on a regional sample;

ALP – average labor productivity, calculated as

the ratio of the gross regional product to the number

of employed people in the region;

UCR&D – the volume of regional research and

development expenditures in relation to the number

of employed people in the region;

SIFA – the volume of investments in fixed assets

in relation to the number of employed people in the

region.

The result of model experiments on the basis of

the Federal State Statistics Service data for the

regions of the Russian Federation for 2020 (Regions

of Russia. Socio-economic indicators-2020) allowed

to form the following econometric dependences of

labor productivity on the proposed indicators (Table

1):

Table 1: Econometric dependences of average labor

productivity on innovation and investment factors of the

Republic of Tatarstan and Nizhny Novgorod region, 2020

Region Production function

Statistics

𝐴𝐿𝑃

 9,983 ∙ 𝑆𝐼



,

∙𝑈𝐶

&

,

0.937 2.164

Nizhny

Novgorod

Region

𝐴𝐿𝑃

 9,462 ∙ 𝑆𝐼



,

∙𝑈𝐶

&

,

0.922 1.794

Determination coefficient and Durbin-Watson

coefficient calculated in the analysis of statistical

characteristics of the Republic of Tatarstan and

Nizhny Novgorod region meet the basic criteria,

which characterizes the built models as

corresponding to the basic statistical tests and

determines their practical applicability.

The result of the revealed econometric

dependence is proof of the high impact of innovation

and investment factors on labor productivity, causing

a significant increase in labor-saving technologies. At

the same time, the analysis of the models

demonstrates the prevailing value of the coefficient of

elasticity of labor productivity in the Republic of

Tatarstan (α=0.761) compared to Nizhny Novgorod

region (α=0.682), which reflects the increase

direction of investment in innovative developments to

save labor. The significant impact of technological

innovation and the resulting increase in labor

productivity in providing the growth of total product

of the regions is due to the dominance of traditional

areas of economic activity in the sectoral economy

structure.

Technological Innovation Impact on Dynamics of Aggregate Income in Digital Transformation of the Economy

127

4 CONCLUSIONS

The study confirms the thesis that technological

innovations act as an endogenous factor of economic

growth in the context of systemic digital

transformation of the modern economy. Analysis of

statistical data reflecting the dynamics of the global

innovation index and GDP growth in various

countries confirms the existence of a positive

relationship between the innovation activity

indicators and the aggregate supply dynamics.

However, the insufficient amount of empirical

information due to the short period of observation

over the processes of digital transformation of the

modern economy, as well as the lack of adaptation of

traditional measurement tools to assess the benefits of

innovations do not allow to uniquely determine the

impact of the latter on the GDP dynamics and the

structural transformation of the modern economy.

Statistical analysis shows a material effect of the

investment and innovation potentials of regional

entities on the direction and rate of change in the total

product of Russian regions, which confirms the

scientific hypothesis of the study. However, the

nature of the impact of technological innovations on

labor productivity and the total income of states

(regions), in the sectoral structure of which

innovative areas of economic activity dominate,

requires further study. Recognition of the thesis about

the technological innovation role in increasing the

efficiency of labor resources use can become a

starting point for the study of structural

transformations in the labor market and the impact of

labor productivity growth on employment level in the

economy.

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SOCIO - ECONOMIC SYSTEMS: OVERCOMING THE THREATS OF THE CRISIS SPACE"

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