Research and Development Spillovers: Role of Absorptive Ability in Pakistan

Abstract

Research and Development (R&D) based economic growth is the running debate in endogenous growth framework to solve the problem of production inefficiency for attaining the economic stability. The high Total Factor Productivity (TFP) growth can be attained through technological innovation, reverse engineering, ‘learning by doing’, artificial intelligence and interaction of the researchers with outside the world. The foreign and domestic R&D innovation adoption is dependent on producers’ willingness to opt financial and absorptive capacity (knowledge capital) of the stakeholders. Existing body of literature reveals that the R&D is a key denominator to raise the output performance and product efficiency both in manufacturing and agriculture sectors. To enhance the economic growth, the country’s effort for internal and foreign R&D innovation adoption and homogeneous technology spillovers are highly important. Innovation adoptions in manufacturing and agriculture sectors is the sustenance for the high TFP growth. These may overcome the potential production gap, which is beneficial to earn the foreign exchange and food security challenges. The purpose of this study is to examine the role of R&D spillovers for stable economic growth through the channel of technology diffusion in the very perspective of Pakistan. This research theme has been designed to investigate the proficiency of R&D spillovers in absorptive ability of Pakistani labor force. Further, this study explores the impacts of R&D spillovers on manufacturing and agriculture productivity in Pakistan. It also investigates the labor force efficiency for progenitive utilization of R&D innovation. The empirical analysis is carried out through the annual time series data spanning over the period of 1972 to 2020. The secondary data is collected from different sources such as World Development Indicators (WDI), Penn World Table 10, FAO, Government of Pakistan Financial Division, Pakistan Bureau of Statistics, etc. The primary data is collected through interviewing the policy experts for narrative and policy analysis. The Cobb Douglas and Translog Production Functions were employed to measure the TFP growth for the economy, agriculture, and manufacturing sectors separately. The Autoregressive Distributive Lagged (ARDL) Model was applied to investigate the contribution of R&D innovation xx adoption and the role of absorptive ability in economic growth. The quantitative analysis provided evidence of the existence of foreign and domestic R&D innovation adoption in Pakistan with poor absorptive ability. It has been visualized that the foreign R&D spillovers have an affirmative role in TFP growth as compared to domestic R&D. The results demonstrated that R&D spillovers perform a significantly positive role in agriculture and manufacturing growth. Further, this study revealed the presence of positive externalities, which are associated with foreign R&D innovation adoption in agriculture productivity. In sectorial analysis, it is concluded that the agriculture TFP growth is more influenced from domestic R&D innovation than that of manufacturing output, which is highly associated to foreign R&D innovation adoption. Absorptive analysis indicate that the labor force in each sector has the poor adoptive and absorptive ability of innovation. A great deal of policy wisdom has been generated. The government should focus on sustainable policies related to domestic R&D, R&D spillovers with sufficient and sustainable R&D expenditures, their availability and accessibility of innovation to boost the economic activities. The government may develop institutional structure and ecosystem for the R&D in each sector. It is direly needed to design the incentive and protection mechanism for private sector R&D through patent registration. The government may emphasize on the implementation of extension services to educate the laborers about effectiveness of early adoption of innovation. It is further recommended for manufacturers to voluntarily adopt the suitable foreign technology and improve the labor force skills through encouraging the innovative ideas, innovative research activities, research workshops, and research seminars. In addition, government of Pakistan should develop incentive mechanism for industrialists to upgrade the manufacturing plants, FDI inflow, technology imports and trade openness. Government needed more efforts to develop agriculture research collaboration with stakeholder and provide agriculture research as public good to achieve the potential level output. An integrated and holistic policy approach along with workable implementation plan is always desired for taking benefits of R&D.