Liberalisation, FDI, and productivity spillovers--an analysis of Indian manufacturing firms

Vinish Kathuria

Oxford Economic Papers, 2002, vol. 54, issue 4, 688-718

Abstract: The objective of the intensification of reforms in India's trade, technology and industry policies in 1991 was to make Indian industry competitive. In the light of these attempted changes, the present paper tested two hypotheses, namely (a) whether liberalisation has improved the productivity of local firms; and (b) whether the spillovers from technology transfer have increased in the liberal regime. To test these, techniques from panel data and stochastic production frontier were employed on 487 firms belonging to 24 three-digit manufacturing industries for the period 1989--90 to 1996--97. The results showed that after liberalisation, the productivity of Indian industry, especially the foreign owned firms, has improved. The econometric results suggested that only 'scientific' non-FDI firms have benefited from the liberalisation. For the 'non-scientific' firms, the impact is found to be productivity depressing. With respect to spillovers, only those domestic firms, which invested in R&D to decode the spilled knowledge, could benefit. Copyright 2002, Oxford University Press.

Date: 2002
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