Does Internal and External Research and Development Affect Innovation of Small and Medium-Sized Enterprises? Evidence from India and Pakistan

Naqeeb Rehman

No 577, ADBI Working Papers from Asian Development Bank Institute

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 rel¬ationship 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.

Keywords: India; Pakistan; SME; R&D; innovation; technology; firm; product innovation; process innovation; external R&D; internal R&D; absorptive capacity; innovative capacity; public support; incentives; output; bank loans; subsidies; tax credit (search for similar items in EconPapers)
JEL-codes: D22 L25 O31 O32 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2016-06-24
New Economics Papers: this item is included in nep-cse, nep-ent, nep-ino and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.adb.org/sites/default/files/publication/185401/adbi-wp577.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:adbiwp:0577

Access Statistics for this paper

More papers in ADBI Working Papers from Asian Development Bank Institute Kasumigaseki Building 8F, 3-2-5, Kasumigaseki, Chiyoda-ku, Tokyo 100-6008, Japan. Contact information at EDIRC.
Bibliographic data for series maintained by ADB Institute ().