Employment effect of innovation: microdata evidence from Bangladesh and Pakistan
Abdul Waheed
#2012-024
The analysis of the impact of innovation on employment growth is an
important topic for policy makers, because (un)employment is an
important social topic, and the effects of innovation on employment are
often poorly understood. Despite the significant importance of this
relationship, very few studies on this topic for developing countries
are yet available compared with developed ones. This paper contributes
to this scanty literature by investigating the employment effect of
innovation for two South Asian developing countries: Bangladesh and
Pakistan. We further analyze whether this relationship shows
country-specific and industry-specific differences. Finally, we
investigate whether complementarity between process and product
innovation exists or which effect (displacement or compensation) of one
particular innovation type dominates the other, in order to influence
employment.
One of the striking findings of our analysis is that both product and
process innovation spur employment in this region as a whole, regardless
of low-tech and high-tech industries, even after controlling for a
number of firm-specific characteristics. Moreover, although both
innovation types also have significantly positive impacts on employment
growth of all Bangladeshi and of all Pakistani firms separately, they
are important factors for employment growth of only high-tech
Bangladeshi firms and of only low-tech Pakistani firms. Moreover, we
observe a strong complementarity between both innovation types in order
to stimulate employment. Contrary to the most previous studies, we
witness an insignificantly negative effect of labour cost on employment
change, perhaps owing to the availability of labour force to hire at
cheaper rates compared with developed countries. We notice that some of
the innovation determinants exert different influences across industries
and across both countries. The same is the case for the determinants of
employment growth.
JEL classification: J23; O31; O33
Keywords: Bangladesh; Employment growth, Pakistan; Product innovation;
Process innovation
