What Determines Innovation in the Manufacturing Sector? Evidence from Pakistan.

Hamna Ahmed, Mahreen Mahmud


This study analysed the behaviour of a sample of manufacturing
firms in Pakistan in order to understand what determines innovative
activity employing a panel data set for the years 2002 and 2006-07.
Probit estimation results reveal that size of the firm and human
resource quality are important internal factors that increase the
likelihood of a firm innovating. Interestingly, whether a firm is
exporting or not has no bearing. However, post innovating there is a
large increase in number of firms who export. Externally, presence in a
geographic cluster is important though further analysis reveals that the
impact varies according to firm size. Size per se does not increase
likelihood of innovating for medium sized firm who only have an
advantage over small sized firms when present in a cluster. Large firms
on the other hand continue to have an advantage and the advantage
further increases with presence in a cluster. Finally, analysis by
product and process innovators reveals that the characteristics of firms
undertaking the two types of innovative activity are similar. The only
noteworthy difference being that process innovation does not benefit
from presence of a firm in a cluster which might be attributable to the
more visible nature of product innovation which benefits from
technological spillovers that are a characteristic of presence in a
cluster. JEL classifications: O14, O31, O33, L6 Keywords: Innovation and
Invention: Processes and Incentive, Developing Countries, Industry

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DOI: https://doi.org/10.30541/v50i4IIpp.365-376


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