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Linkages and Spillovers from Foreign Ownership in the Indian Pharmaceutical Firms

Shandre M. Thangavelu and Sanja Samirana Pattnayak
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Shandre M. Thangavelu: Department of Economics National University of Singapore, 1 Arts Link
Sanja Samirana Pattnayak: Department of Economics National University of Singapore, 1 Arts Link

SCAPE Policy Research Working Paper Series from National University of Singapore, Department of Economics, SCAPE

Abstract: The paper examines the spillover and linkage effects from the presence of foreign firms in the Indian pharmaceutical industry. A comprehensive panel data consisting of nearly 200 firms from 1989 to 2000 was used in the current study. The recent semi-parametric estimation methods as suggested by Olley and Pakes (1996) and Levinsohn and Petrin (2003) were adopted to account for the endogeneity in the input demand. Our results suggest the existence of positive and significant spillover from the foreign equity ownership in the Indian pharmaceutical industry. However, we also found negative and significant spillovers from the backward linkages with foreign firms. The negative spillovers from the backward linkages suggest the possibility of large technology and efficiency gap between local and foreign firms. The results also suggest that institutional arrangements that protect intellectual property rights such as product patents as opposed to process patents will be important for establishing positive linkages and spillovers between local and foreign firms in the Indian pharmaceutical industry.

Keywords: FDI; Backward and Horizontal Linkages; Olley-Pakes; Levinsohn-Petrin (search for similar items in EconPapers)
JEL-codes: F23 C23 O3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cse, nep-cwa, nep-eff and nep-ino
Date: 2006-03
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