Reconciling higher productivity with innovation paradox: mode of learning and innovation in India's manufacturing sector

ABSTRACT This study analyzed the factors behind the innovation paradox in developing countries using the innovation system perspective. Considering the central role of interactive learning in innovation, we analyzed the relative role of Science Technology Inovation (STI) and Doing Using Interacting (DUI) mode of learning in determining TFP and the inter-industry variation therein. The study used the firm-level panel data from India’s manufacturing sector. The results highlight the significance of interactive learning, both STI and DUI, on firm productivity. While STI mode of learning has a greater role in high-technology industries, in the case of low-technology industries DUI is more important. Despite the positive role of STI mode, DUI mode turns out to be the most widely preferred strategy. These findings suggest that innovation policy in developing countries needs to be cognizant of the crucial role of DUI in innovation and make the case for a balanced approach towards promoting STI and DUI mode of learning.