The main objective of present study is to assess the factors influencing innovation capacity of selected Asian countries. The particular emphasis of analysis is placed on intangible and knowledge based factors to understand the knowledge based economic development. The panel data econometric approach is used to assess the impact of R&D, human capital, exposure to foreign technology, financial development, governance, Per capita income, information and communication technology, and population growth on innovation output over the period 1995-2020. For achieving the objective, we synthesized the indices of information & communication technology, innovation output, financial development and exposure to foreign technology by applying Principal Components Analysis (PCA) and Sphericity Bartlett’s test. In this sense, present study introduces indicators to assess the innovation capacity of tested countries. For estimation, the fixed effects approach with robust standard errors is applied on the basis of variety of diagnostic tests. A variety of diagnostics tests, such as Redundant fixed effect, Lagrange Multiplier and Hausman test are used for selection of an appropriate model and estimation technique. The estimates obtained are econometrically robust and arbitrarily accommodate to contemporaneous correlation, serial correlation and heteroskedasticity. The results suggest that, human capital, research &development expenditure, per capita income, governance and financial sector development yield positive and significant impact on the innovation capacity. Based on results of estimated model, it is suggested that Asian countries should make substantial improvement in aforesaid factors in order to develop their innovative abilities.