FDI, Technology Imports and R&D in Indian Manufacturing: Revisited

  • Maitri GhoshEmail author
  • Rudra Prosad Roy
Part of the India Studies in Business and Economics book series (ISBE)


This paper investigates into the factors determining firm-level R&D intensity in Indian manufacturing during post-reforms. In doing so, the differential impact of productivity for Multinational Enterprises vis-a-vis the domestic firms on R&D intensity has been studied. This paper further investigates into the role of imported technology in determining innovative activities of firms. System GMM estimation with firm-level data from 2001 to 2010 suggests that foreign ownership plays a key role in determining firm-level R&D in Indian manufacturing. Interestingly, highly productive foreign firms invest more in R&D activities as against their local counterparts in India. Imported foreign technology significantly reduces R&D intensity of firms which is indicative of the fact that imported foreign technology acts as a substitute of local innovative activities in Indian manufacturing during post-reforms.


  1. Aggarwal A (2000) Deregulation, technology imports and in-house R&D efforts: an analysis of the Indian experience. Res Policy 29:1081–1093CrossRefGoogle Scholar
  2. Ahluwalia IJ (2008) Rapid economic growth: contributing factors and challenges ahead. Asian Economic Policy Review 3:180–204CrossRefGoogle Scholar
  3. Anderson TW, Hsiao C (1981) Estimation of dynamic models with error components. J Am Stat Assoc 76:598–606CrossRefGoogle Scholar
  4. Annique UA, Cuervo-Cazurra A (2008) Do subsidiaries of foreign MNEs invest more in R&D than domestic firms?. Res Policy 37:1812–1828CrossRefGoogle Scholar
  5. Arellano M, Bond S (1991) Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Rev Econ Stud 58:277–297CrossRefGoogle Scholar
  6. Arellano M, Bover O (1995) Another look at the instrumental variable estimation of error-components models. J Econom 68:29–51CrossRefGoogle Scholar
  7. Baldwin R (1999) Agglomeration and endogenous capital. Eur Econ Rev 43:253–280CrossRefGoogle Scholar
  8. Banerjee R, Sinha Roy S (2014) Human capital, technological progress and trade: what explains India’s long run growth? J Asian Econ 30:15–31CrossRefGoogle Scholar
  9. Basant R, Mani S (2012) Foreign R&D centres in India: an analysis of their size, structure and implications. Working Paper No. 2012-01-06, Indian Institute of Management, AhmedabadGoogle Scholar
  10. Basant R (1997) Technology strategies of large enterprises in Indian industry: some explorations. World Dev 25:1683–1700CrossRefGoogle Scholar
  11. Basant R, Fikkert B (1996) The effects of R&D, foreign technology purchase, and domestic and international spillovers on productivity in Indian firms. Rev Econ Stat 78:187–199CrossRefGoogle Scholar
  12. Bhaduri S, Ray AS (2004) Exporting through technological capability: econometric evidence from India’s pharmaceutical and electrical/electronic firms. Oxf Dev Stud 32:87–100CrossRefGoogle Scholar
  13. Birkinshaw JM, Morrison AJ (1995) Configuration of strategy and structure in subsidiaries of multinational corporations. J Int Bus Stud 26:729–750CrossRefGoogle Scholar
  14. Blomstrom M, Kokko A (2003) The economics of foreign direct investment incentives. Working Paper No. 9489, National Bureau of Economic Research, CambridgeGoogle Scholar
  15. Blumenthal T (1979) A note on the relationship between domestic research and development and imports of technology. Econ Dev Cult Change 27:303–306CrossRefGoogle Scholar
  16. Blundell R, Bond S (1998) Initial conditions and moment restrictions in dynamic panel data models. J Econom 87:115–143CrossRefGoogle Scholar
  17. Cantwell J (1987) The reorganization of European industries after integration: selected evidence on the role of multinational enterprise activities. J Common Market Stud 26:127–151CrossRefGoogle Scholar
  18. Cantwell J (1989) Technological innovation and multinational corporations. In: Carriere J (ed) Industrialisation and the state in Latin America. Amsterdam CEDLA, Incidentele Publicaties, Oxford, Basil BlackwellGoogle Scholar
  19. Caves RE (1996) Multinational enterprise and economic analysis. Cambridge University Press, CambridgeGoogle Scholar
  20. Chuang Y, Lin C (1999) Foreign Direct Investment, R&D and spillover efficiency: evidence from Taiwan manufacturing firms. J Dev Stud 35:117–137CrossRefGoogle Scholar
  21. Coe DT, Helpman E (1995) International R&D spillovers. Eur Econ Rev 39:859–887CrossRefGoogle Scholar
  22. Cohen WM, Levinthal PA (1989) Innovation and learning—the two faces of R&D. Econ J 99:569–596CrossRefGoogle Scholar
  23. Crepon B, Duguet E, Mairesse J (1998) Research, innovation and productivity: an econometric analysis at the firm level. Econ Innov New Technol 7:115–158Google Scholar
  24. Das S (1987) Externalities and technology transfer through multinational corporations: a theoretical analysis. J Int Econ 22:171–182CrossRefGoogle Scholar
  25. Deolalikar A, Evenson R (1989) Technology production and technology purchase in Indian industry: an econometric analysis. Rev Econ Stat 71:687–692CrossRefGoogle Scholar
  26. Dinopoulous E, Segerstrom P (2010) Intellectual property rights, multinational firms and economic growth. J Dev Econ 92:13–27CrossRefGoogle Scholar
  27. Dunning JH (2000) The eclectic paradigm as an envelope for economic and business theories of MNE activity. Int Bus Rev 9:163–190CrossRefGoogle Scholar
  28. Fan CS, Hu Y (2007) Foreign Direct Investment and indigenous technological efforts: evidence from China. Econ Lett 96:253–258CrossRefGoogle Scholar
  29. Fikkert B (1993) An open or closed technology policy? The effects of technology licensing, foreign direct investment, and technology spillovers on R&D in Indian industrial sector firms. Unpublished Ph.D. dissertation. Yale University, New Haven, CTGoogle Scholar
  30. Findlay R (1978) Some aspects of technology transfer and direct foreign investment. Am Econ Rev 68:275–279Google Scholar
  31. Ghosh M, Sinha Roy S (2016) FDI, technological choice and spillovers in Indian manufacturing industries. In: Beule FD, Narayanan K (eds) Globalization of Indian industries: productivity, exports and investment. Springer, SingaporeGoogle Scholar
  32. Griffith R, Huergo E, Mairesse J, Peters B (2006) Innovation and productivity across four European countries. Oxford Rev Econ Policy 22:483–498Google Scholar
  33. Griliches Z (1958) Research costs and social returns: hybrid corn and related innovations. J Polit Econ 66:419–431CrossRefGoogle Scholar
  34. Griliches Z (1973) Research expenditures and growth accounting. In: Williams BR (ed) Science and technology in economic growth. Palgrave Macmillan, UKGoogle Scholar
  35. Griliches Z (1986) Productivity, R&D, and the basic research at the firm level in the 1970s. Am Econ Rev 76:141–154Google Scholar
  36. Griliches Z (1988) Productivity puzzles and R&D: another nonexplanation. J Econ Perspect 2:9–21CrossRefGoogle Scholar
  37. Griliches Z, Mairesse J (1984) Productivity and R&D at the firm level. In: Griliches Z (ed) R&D, patents, and productivity. Chicago University Press, Chicago, ILCrossRefGoogle Scholar
  38. Hanel P (2000) R&D, interindustry and international technology spillovers and total factor productivity growth of manufacturing industries in Canada: 1974–1989. Econ Syst Res 12:345–361CrossRefGoogle Scholar
  39. Hymer S (1976) The international operations of national firms: a study of direct foreign investment. MIT Press, CambridgeGoogle Scholar
  40. Kathuria V, Das S (2005) Impact of FDI on R&D strategies of firms in the post-1991 era. IIMB Manag Rev 17:17–28Google Scholar
  41. Katrak H (1985) Imported technology, enterprise size and R&D in a newly industrialising country: the Indian experience. Oxford Bull Econ Stat 47:213–230CrossRefGoogle Scholar
  42. Katrak H (1990) Imports of technology and the technological effort of Indian enterprises. World Dev 18:371–381CrossRefGoogle Scholar
  43. Katrak H (1997) Developing countries’ imports of technology, in-house technological capabilities and efforts: an analysis of the Indian experience. J Dev Econ 53:67–83CrossRefGoogle Scholar
  44. Keller W (1996) Absorptive capacity: on the creation and acquisition of technology in development. J Dev Econ 49:199–227CrossRefGoogle Scholar
  45. Kumar N (1987) Technology imports and local research and development in Indian manufacturing. Dev Econ 25:220–233CrossRefGoogle Scholar
  46. Kumar N (2001) Determinants of location of overseas R&D activity of multinational enterprises: the case of US and Japanese corporations. Res Policy 30:159–174CrossRefGoogle Scholar
  47. Kumar N, Aggarwal A (2005) Liberalization, outward orientation and in-house R&D activity of multinational and local firms: a quantitative exploration for Indian manufacturing. Res Policy 34:441–460CrossRefGoogle Scholar
  48. Kumar N, Saqib M (1996) Firm size, opportunities for adaptation and in-house R&D activity in developing countries: the case of Indian manufacturing. Res Policy 25:712–722CrossRefGoogle Scholar
  49. Kumar N, Pradhan JP (2003) Export competitiveness in knowledge based industries: a firm-level analysis of Indian manufacturing. RIS Discussion Paper No. 43, Research and Information System for Developing Countries, New DelhiGoogle Scholar
  50. Kumar N, Siddharthan NS (1997) Technology, market structure and internationalisation: issues and policies for developing countries. Rutledge, LondonGoogle Scholar
  51. Lall S (1979) The indirect employment effects of multinational enterprises in developing countries. Multinational Enterprises Programme Working Paper No. 3, International Labour Office, GenevaGoogle Scholar
  52. Lall S (1983) Determinants of R&D in an LDC: the Indian engineering industry. Econ Lett 13:379–383CrossRefGoogle Scholar
  53. Lall S (1993) Third world transitionals and their impact on home countries. United Nations Centre on Transnational Corporations, New YorkGoogle Scholar
  54. Levinsohn J, Petrin A (2003) Estimating production functions using inputs to control for unobservables. Rev Econ Stud 70:317–342CrossRefGoogle Scholar
  55. Mansfield E (1980) R&D and innovation: some empirical findings. In: Griliches Z (ed) R&D, patents and productivity. University of Chicago Press, ChicagoGoogle Scholar
  56. Markusen JR (2002) Multinational firms and the theory of international trade. MIT Press, CambridgeGoogle Scholar
  57. Marschak J, Andrews WH Jr (1944) Random simultaneous equations and the theory of production. Econometrica 12:143–205CrossRefGoogle Scholar
  58. Mrinalini N, Nath P, Sandhya GD (2013) Foreign direct investment in R&D in India. Curr Sci 105:767–773Google Scholar
  59. Mrinalini N, Nath P, Sandhya GD (2014) MNCs R&D interest in India: an overview of their centre linkages with Indian institutions. Int J Technol Glob 7:217–231CrossRefGoogle Scholar
  60. Mukherjee A, Sinha UB (2013) Patent protection, southern innovation and welfare in a north-south trade model. Economica 80:248–273CrossRefGoogle Scholar
  61. Olley S, Pakes A (1996) The dynamics of productivity in the telecommunication industry. Econometrica 64:1263–1298CrossRefGoogle Scholar
  62. Pearce RD (1999) Decentralized R&D and strategic competitiveness: globalized approaches to generation and use of technology in multinational enterprises (MNEs). Res Policy 28:157–178CrossRefGoogle Scholar
  63. Perez T (1997) Multinational enterprises and technological spillovers: an evolutionary model. J Evol Econ 7:169–192CrossRefGoogle Scholar
  64. Pohit S, Biswas P (2016) FDI in R&D in India: an introspection. Turkish Econ Rev 3:513–521Google Scholar
  65. Pradhan JP (2002) Liberalisation, firm size and R&D performance: a firm level study of Indian pharmaceutical industry. J Indian Sch Polit Econ 14:647–656Google Scholar
  66. Raymond W, Mairesse J, Mohnen P, Palm F (2015) Dynamic models of R&D, innovation and productivity: panel data evidence for Dutch and French manufacturing. Eur Econ Rev 78:285–306CrossRefGoogle Scholar
  67. Rogers M (2004) Absorptive capability and economic growth: how do countries catch-up? Camb J Econ 28:577–596CrossRefGoogle Scholar
  68. Ronstadt RC (2002) Technology choices and the new discipline of technology commercialization. In: Thore SA (ed) Technology commercialisation: DEA and related analytical methods for evaluating the use and implementation of technical innovation. Springer, New YorkGoogle Scholar
  69. Sasidharan S, Kathuria V (2011) Foreign Direct Investment and R&D: substitutes or complements—a case of Indian manufacturing after 1991 reforms. World Dev 39:1226–1239CrossRefGoogle Scholar
  70. Siddharthan NS (1992) Transaction costs, technology transfer, and in-house R&D: a study of the Indian private corporate sector. J Econ Behav Organ 18:265–271CrossRefGoogle Scholar
  71. Srivastava V (1996) Liberalization, productivity and competition: a panel study of Indian manufacturing. Oxford University Press, New DelhiGoogle Scholar
  72. Terleckyj NE (1974) Effects of R&D on the productivity growth of industries: an exploratory study. Report no. 140, December, National Planning Association, Washington, D.CGoogle Scholar
  73. UNCTAD (1995) World investment report 1995. Transnational corporations and competitiveness. United Nations, New YorkGoogle Scholar
  74. Vernon R (1974) The location of economic activity. In: Dunning J (ed) Economic analysis and the multinational enterprises. George Allen and Unwin, LondonGoogle Scholar
  75. Vernon R (2000) In the Hurricane’s eye: the troubles prospects of multinational enterprises. Harvard University Press, CambridgeGoogle Scholar
  76. Wang JY, Blomstrom M (1992) Foreign investment and technology transfer: a simple model. Eur Econ Rev 36:137–155CrossRefGoogle Scholar
  77. Yeaple SR (2005) A simple model of firm heterogeneity, international trade and wages. J Int Econ 65:1–20CrossRefGoogle Scholar
  78. Zhang A, Zhang Y, Zhao R (2003) A study of the R&D efficiency and productivity of Chinese firms. J Comp Econ 31:444–464CrossRefGoogle Scholar

Copyright information

© Springer Nature Singapore Pte Ltd. 2018

Authors and Affiliations

  1. 1.Bethune CollegeKolkataIndia
  2. 2.Department of EconomicsJadavpur UniversityKolkataIndia

Personalised recommendations