Does technological innovation influence productive capacities in the Asia–Pacific region? Evidence from a dynamic model approach

Technological innovation plays a critical role in shaping economic performance, yet its impact on productive capacities remains underexplored, particularly in the Asia–Pacific (APAC) region. While existing studies highlight the positive relationship between innovation and productivity, gaps persist in understanding how this effect varies across different income levels. This study fills this gap by employing a dynamic panel data approach to analyze the effect of technological innovation on productive capacities across 41 Asian-Pacific countries from 2008 to 2019. Using UNCTAD’s novel indexes for productive capacities and technological innovation, we estimate a dynamic panel fixed effects (DFE) model and a system generalized method of moments (S-GMM) model to address endogeneity concerns. Our findings indicate that technological innovation leads to higher productive capacities, with a consistent and robust effect observed in high-income countries (HICs) and lower-middle-income countries (LMICs), whereas the impact is weaker in upper-middle-income countries (UMICs). This divergence suggests potential structural constraints, diminishing returns, or institutional factors that inhibit innovation-driven growth at certain income levels. The study uniquely contributes by integrating a comprehensive measurement of productive capacities with innovation indexes, offering new empirical insights into the region’s technological transformation. These findings have important policy implications for fostering technological diffusion, industry-academia partnerships, and inclusive innovation strategies that maximize productive capacities across diverse economic contexts.