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

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.