start our discussion by focusing on R&D, both intramural – done inside the firm – and extramural – outsourced outside the firm – and then we will explore other activities such as training, acquisition of equipment and licenses.

# 4.1 Knowledge capital intensity

R&D activity tends to be highly concentrated in several countries, indicating that only a small share of firms conducts the bulk of aggregate R&D. One country that stands out is India, where the incidence of R&D is the highest in the region, and the concentration rate is low, implying that even though the average intensity of R&D –R&D expenditure in dollars for a given year for those firms that carry out R&D - is low compared to the average of the ECA region, many firms are investing in R&D. Innovation leaders (e.g., Bangladesh and India) present a larger percentage of firms conducting R&D than the average of the ECA and Africa regions, while laggards display a lower percentage. The same regional ranking applies for R&D expenditures per employee, although the region presents a poor performance compared to the standards of the ECA region. Although the distribution of R&D intensity is biased to the left for most types of firms, the top of the distribution indicates larger values for large, mature, foreign-owned, and trader firms.<sup>4</sup> Intramural R&D is the main source of R&D for all the South Asian countries.

<u>Table 2. Knowledge capital intensity</u>

|**Type**|**Indicator**|**Bangladesh**|**Pakistan**<sup>**B**</sup>|**India**|**Nepal**|**South**<br>**Asia**|**ECA**|**Africa**|
|---|---|---|---|---|---|---|---|---|
|R&D|% firms|19%|6%|56%|4%|21%|9%|19%|
||Per Employee<sup>a</sup>|33.17|-|47.66|14.33|354.5|1663|249.14|
||Intramural %|16%|6%|53%|3%|19.3%|8%|16.5%|
||Extramural %|5%|3%|7%|1%|4%|4%|7%|
|Training|% firms|21%|12%|43%|6%|21%|-|20%|
||Per Employee|175.96|455.72|59|142.358|175.96|-|303.56|
|Equipment|% firms|75%|17%|68%|23%|46%|-|29%|
||Per Employee|473.17|267|2,358.45|3409.17|1626.95|-|3017.23|
|License|% firms|5%|3%|4%|1%|3%|-|8%|
||Per Employee|52.04|492|39.40|205.43|197.21|-|151.56|

a Intensity for firms doing R&D b For Pakistan only 23 firms with information available Source: Author’s elaboration from Enterprise Survey (2014) Investments in equipment appear as the most important investment in knowledge capital (except for Pakistan). Leaders do more training than laggards, with nearly half of Indian firms providing training to their workers and spending an amount per employee that doubles that of the laggard group. However, all countries in the region have spent less money on training per worker than on R&D. Few firms in the SAR acquired new licenses.

The pattern of R&D is very heterogeneous when considering firm characteristics, both within and across country groups (Table 3). In India, small, non-exporters, national and very young firms are more R&D intensive, while in Bangladesh, the pattern is slightly different, with large, exporters, foreign and old firms as more R&D intensive.<sup>5</sup> More importantly, In Pakistan there is a very large concentration of R&D activity in an extremely low number of firms.

> 4 Details upon request.

> 5 These findings were statistically significant.

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