Innovation and Sustainable Development: Does Aid and Political Instability Impede Innovation?

Sound innovation capabilities help the nations not only to capture bigger market shares but also to sustain long-term economic growth. Innovation is of vital importance at all stages of a country’s development as it promotes productivity, value creation, employment, economic growth, and sustainability. Several factors can affect the innovation activities of a country. For example, peaceful and stable environment, effective macroeconomic designs, sound institutional quality, and efficient utilization of resources are of great significance for a country to nourish economic, business, and market activities. Applying the Auto Regressive Distributive Lag approach to cointegration, this study investigates the short- and long-run impacts of aid, political instability, and terrorism upon the innovation of a laggard economy, namely, Pakistan. Our findings reveal that aid, political instability, and terrorism all have adverse impacts on innovation. Results across robustness checks remain the same. This study is of strong policy implications for policymakers, governments and opposition parties, and security and intelligence agencies to develop sound macroeconomic designs and policies, bring harmony for political stability, and curb terrorism, respectively.