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Innovation Under the Threat of FDI: A Study of Indian Firms

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Abstract

Innovation is widely accepted as primary driver of economic growth in most of the developed as well as developing parts of the world. Recently, countries are more planned to achieve innovation-based competitiveness as it directly impacts productivity and enhances the immune to any form of economic turbulence and crisis. Along with that, an inflow of FDI enhances the knowledge spillover process via more R &D and expected to induce innovation for the local firms at a faster rate. With this in mind, the paper explores the impact of FDI on innovative performance of two giant Indian industries namely textile and chemical. Using a panel data technique for 9584 firms over a span of 15 years, the paper found a negative impact of inflow of FDI on innovation. Such findings further suggest that foreign entrants do not rely in Indian associates for innovation rather they rely on their country of origin or parent firm for the same. Our findings further indicate that inflow of FDI may not be the best source of knowledge spillover for Indian firms.

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Data Availability

Data Link: https://drive.google.com/drive/folders/1hZ5MwjIYG3dxj9w0WHlixFP9EwErqwGj.

Notes

  1. Two giant industries are chosen based on having more numbers of firms and more market shares in the manufacturing domain.

  2. Ministry of science and technology GOI.

  3. All data are converted into equal units for the purpose of combing.

  4. Foreign direct investment (FDI) has been an important non-debt financial resource for the economic development of India. International companies invest in India to take benefit of relatively lower wages, and the special investment benefits like tax exemptions, etc. For a country where foreign investment is being made, it also means achieving technical know-how and creation of employment.

    The Indian Government’s advantageous policy regime and strong business environment has ensured that foreign capital keeps flowing into the country.

  5. It is the earnings of a business after all income taxes have been deducted.

  6. It is the earnings of a business after all income taxes have been deducted.

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Authors and Affiliations

  1. St. Xavier’s University, Kolkata, West Bengal, 700160, India

    Devleena Majumdar & Sweta Shaw

  2. St. Xavier’s University, Kolkata, India

    Devleena Majumdar

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  1. Devleena Majumdar
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Majumdar, D., Shaw, S. Innovation Under the Threat of FDI: A Study of Indian Firms. J Knowl Econ (2023). https://doi.org/10.1007/s13132-023-01477-5

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