Innovation Challenges in South Asia: Evidence from Bangladesh, Pakistan and India

Abstract

In literature, the implications of resource constraints for innovation outcomes are conflicting. A broad body of empirical research focuses on the negative impacts of such constraints, most of which use data from advanced economies. However, recently some scholars argue that in emerging economies, innovation occurs in spite of and even because of the poor investment environment. Using firm-level data from South Asia, which provides a good natural example for such poor investment environment, and where innovation tigers like India continue to thrive, we investigate whether internal barriers such as lack of human capital and financial capital are indeed barriers for firms in the region. Our findings for India provide empirical support for the literature on resource-constrained innovation, while results for Pakistan support earlier contributions within the conventional innovation literature. For Bangladesh, however, neither human nor financial resources but firm-characteristics such as size and foreign ownership promote innovation more. Findings are validated across sub-samples of small and medium-sized enterprises and non-exporters, which are more likely to face such constraints.

Do technological innovation, foreign investment, trade and human capital have a symmetric effect on economic growth? Novel dynamic ARDL simulation study on Bangladesh

“…As trade openness improves integration with innovation sources, foreign direct investment increases gains, and economies are able to take advantage of increased returns to scale and efficiencies of specialization, economic growth is improved (Udeagha and Ngepah 2022b ). Despite most people believing that natural resources supply most of a country's income, human capital is considered an important factor in terms of economic development (Kabadurmus 2021 ). An economy with a skilled workforce and a positive growth outlook tends to follow the various economic motivations.…”

“…A country's trade openness can lead to growth through specialization, innovation, productivity enhancement, or improved resource allocation, according to traditional trade theory. Developing and developed countries trade freely with each other, thereby transferring knowledge between them, which implies a skilled domestic labor force is needed to adapt new technologies (Kabadurmus 2021 ).…”

“…Bangladesh studies on innovation are very weak (Uddin and Ahmed 2021 ). Bangladesh's unstable government and political revolutions have a higher failure rate that hampered the construction of good management and overall development (Kabadurmus 2021 ). Bangladesh has yet to notice a shift in policy.…”