KNOWLEDGE SPILLOVER AND DOMESTIC PRODUCTIVITY ACROSS COUNTRIES: THE ROLE OF ECONOMIC OPPORTUNITIES

Abstract

This study analyses the effect of international knowledge spillover on total factor productivity (TFP) in 24 sample countries from 1996 to 2020, focusing on the role of economic opportunities in sustaining this relationship. The purpose of the research is to shed light on the relationship between knowledge transfer and TFP, particularly as it relates to the role of economic opportunities. Knowledge spillover, total factor productivity, and economic opportunities are investigated by using Cross Sectionally Augmented Autoregressive Distributive Lag (CSARDL) econometric approaches to analyses panel data from a wide range of countries. The study's results show that international transfer of knowledge increases total factor productivity. Knowledge transfer via routes like trade and FDI is crucial to raising total factor productivity. However, it is evident that the import-related spillover is more effective than inward FDI in affecting total factor productivity in sample countries. Moreover, Knowledge spillovers via imports and incoming FDI are also found to have a substantial complementary link. The study also indicates that the extent of the knowledge spillover effect on TFP is heavily influenced by economic opportunities. Knowledge spillover is most beneficial to economically advanced nations with thriving business climates, and well-connected infrastructure. These nations provide a setting that encourages the integration of new ideas and practices, which boosts their productivity. However, it is difficult for less developed nations to reap the benefits of knowledge spillover due to their lack of economic opportunities. Poor institutions, a lack of basic infrastructure, and constrictive business environments all limit their ability to effectively use new knowledge to improve productivity. The study emphasizes the policy importance of these results. By prioritizing economic opportunities, countries can increase their capacity to absorb and leverage foreign knowledge, which in turn promotes total factor productivity growth and long-term economic development.