Estimation of the spillover effect between patents and innovation using the GARCH-BEKK model

This study examines the mean and variance spillovers between patents filed and total factor productivity in Pakistan during the period lasting from 1964 to 2015. Using the multivariate generalized autoregressive conditionally heteroskedastic-Baba, Engle, Kraft and Kroner (GARCH-BEKK) model, we find no evidence of mean spillover effects between patents filed and productivity growth. However, the results support the existence of the variance spillover effect, which illustrates that the innovations may affect productivity in the long-run. Moreover, bidirectional causality in the mean and variance between innovation and productivity growth is non-existent. We find that R&D/GDP, skilled labour force and economic freedom are the significant factors affecting technological advancements in the country. We also determine that R&D/GDP and economic freedom are the important factors affecting patent activities in Pakistan. Our findings suggest that the government needs to emphasize the regulations of the patent system to safeguard the interests of investors, which ultimately promotes economic growth.