Innovation Spillovers, Economic Growth, and the Role of Absorptive Ability

Research and Development (R&D) based economic sustainability is the current debate in endogenous growth framework to solve the problem of production inefficiency to achieve 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 around the world. The adoption of foreign and domestic R&D innovation and its spillovers are relying on the willingness to opt, financial capital, and knowledge capital. The rationale of this study is to examine the importance of R&D spillovers for stable economic growth (EG) through the channel of knowledge diffusion in Pakistan. This research theme has been designed to investigate the proficiency of R&D diffusions in the absorptive capacity of the Pakistani labour force and the efficiency to progenitive utilization of R&D innovation. Quantitative analysis is carried out through the yearly time series data covering the period of 1972 to 2022. The Translog and Cobb Douglas production functions were employed to measure the TFP growth and Autoregressive Distributive Lagged (ARDL) Model was applied for empirical analysis. The quantitative analysis provided evidence of the presence of foreign and domestic R&D innovation spillovers and adoption in Pakistan with poor absorptive capacity. The study has indicated that foreign R&D spillovers have an affirmative role in TFP growth compared to domestic R&D. A great deal of policy wisdom has been generated, which directs that government should focus on sustainable policies related to local R&D, R&D spillovers with sufficient and sustainable R&D expenditures, their availability, and accessibility of innovation to boost the resource efficacy for higher TFP growth. The government should emphasise the implementation of extension services to educate workers by demonstrating the effectiveness of early adoption of innovation, innovative technology, and artificial intelligence (AI) to achieve sustainable productivity.