DOES ANTI-CORRUPTION FACILITATE OR HINDER TECHNOLOGICAL INNOVATION?

Innovation is a major economic growth contributor, which is often hindered by corruption. However, this relationship is not always supported. This study analyzes the interrelation between anti-corruption (AC) and technological innovation (TI) in China by applying the bootstrap rolling-window full-sample and subsample Granger causality test. The results confirm that the influence of AC on TI is two-fold. On the one hand, AC positively influences TI, indicating that it facilitates TI. This finding supports the "sanding-the-wheels" hypothesis, which postulates that corruption impedes innovation. On the other hand, there is a negative influence from AC to TI, which is mainly caused by the COVID-19 pandemic. Further, the results show that TI positively influences AC, implying that TI can affect government's AC-related decisions. Based on these findings, governments should coordinate their efforts toward innovation and AC, while firms should adopt innovation-driven strategies for long-term growth.