Does Internal and External Research and Development Affect Innovation of Small and Medium-Sized Enterprises? Evidence from India and Pakistan
Rehman, Naqeeb Ur | June 2016
Abstract
This study investigates the impact of internal and external research and development (R&D) on the innovation performance of small and medium-sized enterprises (SMEs) in India and Pakistan. Micro-level data was obtained for 3,492 Indian and 696 Pakistani SMEs from the World Bank’s Enterprise Survey, and bivariate probit estimation techniques were used. The results show that internal and external R&D positively affects product and process innovations. However, this effect is stronger for Indian SMEs. The negative relationship between firm size and innovation output implies that SMEs in both countries face resource constraints. Further, Indian SMEs are dominant in terms of undertaking internal R&D and generating product and process innovations relative to those in Pakistan. The complementary relationship between internal and external R&D has been examined for both countries. The study is unique in comparing Indian and Pakistani SMEs innovation activities using micro-level data. The results suggest that business managers can utilize a balanced combination of internal and external R&D to accelerate innovation output and increase absorptive capacity. Specifically, public support for innovation, such as R&D grants, subsidies, and tax credits, could encourage SMEs to undertake more radical innovations.
Citation
Rehman, Naqeeb Ur. 2016. Does Internal and External Research and Development Affect Innovation of Small and Medium-Sized Enterprises? Evidence from India and Pakistan. © Asian Development Bank Institute. http://hdl.handle.net/11540/6481.Keywords
Trade And Development
Large Scale Industry
Regional Trade
Commerce and Industry
Trade Negotiations
Merchandise Trade
Domestic Trade
Telecommunication Companies
Rural Rehabilitation
Biotechnology
Interindustry Trade
Industrial Policy
Industrial Investment
Industrial Development
Small Scale Industry
Medium Scale Industry
Local Industry
Transport Infrastructure
Trade regulations
Rural development
Unfair competition
Supply and demand
Energy policy
Developing countries
Industrial organizations
Creative industries
Investment banking
Microfinance
Financial planning industry
Infrastructure
Manufactures
Business failures
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