This paper is about the new role of academic institutions in the economic development of developing countries. Educational institutes are significant in propelling economic development as they are the powerful drivers, technology centres, developers and investors. Universities can affect the economic growth of developing countries. The purpose of this new role of academic institutions is to touch virtually every aspect of daily lives and the prosperity of the communities living in rural areas. At a larger scale it aims to initiate a process of policy learning, exchange between countries in different stages of economic development and knowledge sharing with their universities research students. The study identifies the current technology innovation in the field of education and analyzes the case of developing and developed countries. To demonstrate, we do an in-depth study of Pakistan's education system. This paper explores strategic decision by using game theoretical analysis. The paper constructs a game model subject to preferential policy between Government and Universities. It offers three games that give the overview of the role of the government to promote the quality of education. The paper finds the equilibrium of the game under three specific conditions. The result shows that better policies lead to quality education that foster the development of the country. It clearly shows that having an autonomous body to regulate the education policies can promote the innovation and technology adoption. This study is two-fold; it provides the insight of university-government interaction as well universities' interaction among themselves.