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Is R&D spending influenced by disinvestment and local political corruption? The case of Indian central public sector enterprises

Ritika Jain

Economic Systems, 2021, vol. 45, issue 3

Abstract: The current study examines the effect of disinvestment (dilution of state ownership) and local political corruption on R&D spending in enterprises owned by the central government of India. Based on certain characteristic features of innovation as a strategy available to state-owned enterprises, I build two sets of hypotheses formalising the channels of how these variables may affect the possibility and amount of R&D. Data is drawn from multiple sources to compile a dataset that covers all manufacturing central government-owned enterprises in India over a period of ten years from 2007 to 2016. The study employs an instrumental variable technique to reduce the endogeneity between disinvestment and R&D decisions. We find that, while disinvestment and local political corruption have strong negative effects on whether a firm invests in R&D or not, it has no effect on the amount of R&D. In fact, the amount is driven by a host of firm-specific factors such as size, profit and proficiency of the share of skilled labor, managerial strength and non-unionisation of labor. We also find that the effects are strongly driven by the size of firms, special status awarded to firms and the ideology of the state where the enterprise operates.

Keywords: Innovation; Partial privatization; Corruption; India (search for similar items in EconPapers)
JEL-codes: D73 L32 O32 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.ecosys.2021.100877

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