DOI: https://doi.org/10.52131/pjhss.2023.1102.0499 2033 eISSN: 2415-007X Pakistan Journal of Humanities and Social Sciences Volume 11, Number 02, 2023, Pages 2033-2046 Journal Homepage: https://journals.internationalrasd.org/index.php/pjhss Knowledge Spillovers and Total Factor Productivity Across Countries: The Role of Institutions Naveed Ali 1 , Lala Rukh 2 , Muhammad Imad Khan 3 , Sohrab Khan 4 1 Department of Economics & Development Studies, University of Swat, Pakistan. Email: naveedali@uswat.edu.pk 2 Center for Management & Commerce, University of Swat, Pakistan. Email: lalarukh@uswat.edu.pk 3 Department of Economics & Development Studies, University of Swat, Pakistan. Email: imad@uswat.edu.pk 4 Associate Professor, Department of Computer Systems Engineering and Sciences, University of Engineering and Technology Khuzdar, Balochistan, Pakistan. Email: sohrab@buetk.edu.pk ARTICLE INFO ABSTRACT Article History: Received: May 18, 2023 Revised: June 20, 2023 Accepted: June 21, 2023 Available Online: June 24, 2023 Why certain countries gain more than others from knowledge spillover is a topic of intense dispute in academic circles. It is generally believed that knowledge spillovers provide greater opportunities to countries to follow higher domestic productivity. However, some economies are not experiencing the productivity benefits of knowledge spillovers and implementing actions that would significantly move the economy onto a higher, more sustainable development path.This study examines the interaction between knowledge spillovers with institutional quality in affecting total factor productivity for sample countries. To serve this purpose, this study employs Cross Sectionally Augmented Autoregressive Distributive Lag (CS-ARDL) econometric technique. The results suggest that knowledge spillovers contributing to domestic productivity. However, the relationship between knowledge spillovers and domestic productivity depends on certain level of institutional characteristics. Hence, countries with high quality of institutions get more benefited from knowledge spillovers. Therefore, policy complementarity is pre- requisite for domestic productivity. The implication for policy sequencing is that the countries, where policy complementarities are weak, must have a strategy in place to improve their structural and institutional quality. Keywords: Knowledge Spillovers Total Factor Productivity Institutional Quality Funding: This research received no specific grant from any funding agency in the public, commercial, or not-for-profit sectors. © 2023 The Authors, Published by iRASD. This is an Open Access article distributed under the terms of the Creative Commons Attribution Non- Commercial License Corresponding Author’s Email: naveedali@uswat.edu.pk 1. Introduction 1.1. Research Background The Solow growth model (1953) is the preliminary point of almost all the analysis of economic growth. Solow model predicts that country’s initial per capita income and factors that derive its steady state level of capital is solely responsible for country’s output growth. The main prediction of the Solow model is that capital accumulation is a main characteristic of country’s output growth, implying that a large capital stock leads to a higher growth in income. But the main conclusion of the Solow model is that capital accumulation cannot be solely responsible for the dissimilarities in incomes across nations, especially by assuming that capital accumulation effects economic growth through conventional channel such that, capital makes direct accumulation in production and for that it is paid its marginal product. Put differently, The United states (US) output growth rate has been expanding at a much higher rate than the collective volume of land, labor and capital stock of US. Additionally, during recent decades, this difference increases from on business cycle to the other (Schultz 1961). Unlike traditional growth theories, Endogenous growth theory (Romer 1986) highlighted the importance of R&D in economic prosperity of the country. Endogenous growth theory postulates that R&D plays a vital role in cross country income differences. R&D activities improve human capital; Better human capital helps to develop the skills and productivity power of labor