incentives to engage in long-term and disruptive innovative activities (Aghion et al., 2010). Further, firm productivity is also relevant, as the increased revenues obtained through increased efficiency allows the more efficient firms to overcome the large fixed cost of introducing radical innovations or adopting highcost technologies. Additionally, multinational firms are more prone to introduce radical innovations than domestic firms or single-destination exporting firms, as they can dilute the fixed cost of innovating by supplying the same international new product in different countries (Brambilla, 2009).

Despite high average innovation rates in the region, there is little degree of novelty in innovation. This pattern is in line with the one observed in other regions such as ECA and Africa (Table 9). Bangladesh and India appear as the innovation leaders in SAR. However, most of their inventions are related to the imitation of existing products and/or processes and, therefore, the introduction of products and processes only new to the firm. At the other end, Nepal and Pakistan show very low innovation rates in general, including imitation activities. Firms in these two countries engage little in innovation activity. Therefore, while the more radical innovation behavior is low and similar across the four countries in the region, and also similar to the average in ECA and Africa, Bangladesh and India show very high imitation rates when compared to other countries within and outside the region, while Pakistan and Nepal show low innovation activity in general.

Quality upgrading or vertical innovations are the focus of firm-level innovation in South Asia. Firms in the region tend to innovate for upgrading the quality of their products; except for India, where horizontal innovations or the introduction of new products is slightly more frequent. This contrasts with other regions like ECA or Africa, where firms primarily innovate to create new goods.

Table <u>9. Percentage of innovativeness (% of all firms)</u>

||**Bangladesh**|**Pakistan**|**India**|**Nepal**|**SAR**<br>**average **|<sup>**ECA**</sup>|<sup>**Africa**</sup>|
|---|---|---|---|---|---|---|---|
|New to Firm|44%|8%|54%|12.3%|30%|18%|25%|
|Of which new Product|20%|38%|56%|0%|29%|74%|68%|
|Of which product upgrade|80%|62%|44%|100%|72%|26%|32%|
|Imitator(new to firm/local market)|37%|6%|47%|12%|26%|10%|20%|
|New to National|4%|2%|4%|0.3%|3%|6%|3%|
|New to International|3%|0.5%|2%|0.03%|1%|2%|2%|

Source: Author’s elaboration from Enterprise Survey (2014) In all the SAR region except in Pakistan, process innovation is related to the introduction of a new method, followed by innovations in supporting activities (Table 10). However, a small proportion of processinnovating firms introduce an invention that is new to the market. Again, showing the low degree of innovativeness of SAR firms in terms of vertical innovations. The behavior of the region is similar to that of the ECA and Africa regions, although the percentage of firms introducing new processes to the market is more than triple that of the SAR region.

<u>Table 10. Level of Innovativeness (Process) (% of all firms which have done process innovation)</u>

||**Bangladesh**|**Pakistan**|**India**|**Nepal**|**SAR**<br>**average**|**ECA**|**Africa**|**Russian**<br>**Federation**|**Turkey**|
|---|---|---|---|---|---|---|---|---|---|
|New Process to Market|11%|20%|11%|7%|12%|40%|13%|38%|19%|
|Process-Method|89%|59%|85%|57%|73%|74%|73%|66%|94%|
|Process-Support Activity|50%|72%|65%|50%|59%|54%|61%|66%|55%|
|Logistics Innovation|39%|47%|64%|36%|47%|54%|63%|43%|71%|

Source: Author’s elaboration from Enterprise Survey (2014) 18