Does Higher Labour Market Flexibility Discourage R&D? Firm-Level Evidence from India’s Organised Manufacturing

Gopal Krishna Roy () and Amaresh Dubey ()
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Gopal Krishna Roy: Madras School of Economics
Amaresh Dubey: Jawaharlal Nehru University

The Indian Journal of Labour Economics, 2023, vol. 66, issue 4, No 10, 1119-1130

Abstract: Abstract The empirical evidence on the association between labour market flexibility and research & development (R&D) activities of firms is limited only to developed economies. In this research note, we examine the relationship between labour market flexibility and the R&D decisions of firms in India's organised manufacturing. Using a cross-section of manufacturing firms from the Annual Survey of Industries (ASI) 2015–16 unit-level data, we model the R&D decision of firms as a two-step process. We use Cragg's Double-hurdle model that examines the probability of undertaking R&D in the first stage and the extent of R&D expenditure Amongst the R&D-performing firms in the second stage. Controlling for the firm-specific determinants of R&D expenditure, we find that the spatial variation in labour market flexibility is negatively and significantly associated with the extent of R&D expenditure of R&D-performing Indian firms. We extend the analysis by proxying R&D investment with the factories' net investment in plant and machinery. We found a similar negative correlation between labour market flexibility and the net value of plant and machinery of factories.

Keywords: Labour market flexibility; R&D; Cragg’s double-hurdle model; Organised manufacturing; Labour policy (search for similar items in EconPapers)
JEL-codes: D22 J08 L51 L52 O32 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s41027-024-00472-x

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