Purpose: This research is an empirical study that addresses whether knowledge resources impact on, or do not impact on, innovation development and if this impact is mediated by dynamic capabilities in the medical tourism sector in Mashhad city, Iran. Methodology: A quantitative research methodology was applied and questionnaires were used for data collection in this study. A total of 108 questionnaires were collected of which 102 questionnaires were valid. Data were analyzed using structural equation modelling technique. Findings: Empirical evidence obtained from the study reveals that the dynamic capability of learning plays a significant role in transforming knowledge resources into innovation in the medical tourism sector. The mediating role of coordinating capability in the relationship between explicit and tacit knowledge and innovation is considerable and it influences human capital, as well. Sensing capability also exhibits some degree of a mediating role; however, integrating capability is not influential and its role in transforming explicit knowledge to innovation is rejected. Originality: Most studies on innovation in medical tourism focused on market and its typology, and neglected the role of knowledge resources and dynamic capabilities. The current study bridges this gap and thus contributes to scientific literature.

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