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Scalability versus flexibility: firm size and R&D in Indian industry

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Abstract

This article has examined the impact of firm size on R&D spending for a panel of several thousand Indian firms, for a period of seven years from 1999–2000 to 2005–2006. The average levels of R&D spending are low but for firms that do undertake R&D the average levels of R&D spending are much higher. The results of the analysis for all the manufacturing sector firms have shown that larger firm size is associated with a higher probability of R&D spending. In non-linear estimation the squared term is negative denoting that after a particular threshold firm size has no effect on R&D spending. When only the R&D spending firms are evaluated then size has a mild impact on R&D spending and in a non-linear framework the effect of size disappears signifying that both the relatively smaller and larger firm alike seem to be motivated in building capabilities in the post-liberalization period of the Indian economy.

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Notes

  1. The consequences of R&D spending are, however, not evaluated in this analysis. On that topic, the literature is equally large (see Hall 2002) and while evidence for Indian firms is not available, the paucity of data on innovative sales or productivity precludes such analysis.

  2. They also noted that previous studies of the private, or firm-level, returns to R&D had been based on incomplete and imprecise measures of productivity and showed how Census-Bureau, plant level data, the longitudinal research database, could be used to construct estimates of total factor productivity that were subject to considerably less measurement error than those constructed from publicly available sources. These generated substantially more precise estimates of the firm-level returns to R&D. They reported that the returns to company-funded R&D remained high during the productivity slowdown of the 1970s. Broadly similar results were also established by Medda et al. (2005).

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  1. School of Management, University of Texas at Dallas, Richardson, TX, 75080, USA

    Sumit K. Majumdar

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Majumdar, S.K. Scalability versus flexibility: firm size and R&D in Indian industry. J Technol Transf 36, 101–116 (2011). https://doi.org/10.1007/s10961-009-9147-x

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