Relationship between trade openness, innovation, and total factor productivity in BRICS and D-8 countries

Research Background: Understanding how trade openness (TO) and innovation interact to drive total factor productivity (TFP) growth is a critical debate. Policymakers in BRICS and D-8 countries require evidence-based insights to formulate strategies that effectively integrate trade and innovation policies. Purpose of the article: The purpose is to assess whether and how TO contributes to TFP growth, emphasizing interaction with innovation, and to provide insights to policymakers in BRICS and D-8 countries in formulating strategies that integrate trade and innovation policies. Methods: The study employs robust econometric techniques to address panel data challenges and ensure reliable results. These techniques help to accurately capture the effects of TO on TFP while considering the moderating role of innovation. The study also includes a heterogeneous analysis to account for differences in the developmental contexts between BRICS and D-8 countries. Findings & value added: The findings reveal that TO positively and significantly impacts TFP, driven by improved resource allocation and access to new markets. Innovation significantly enhances the productivity benefits of TO, particularly in BRICS. The heterogeneous analysis indicates consistent TFP improvements across both groups, although the impact of innovation varies, reflecting different developmental stages. The positive impact of TO on TFP in both groups highlights the importance of integrating trade and innovation policies. The study underscores the importance of reducing trade barriers and investing in research and development and patent protection to maximize productivity. These insights offer valuable guidance for policymakers in tailoring trade and innovation strategies for BRICS and D-8 countries.