IDEAS home Printed from https://ideas.repec.org/a/jed/journl/v40y2015i3p55-83.html
   My bibliography  Save this article

Technology Spillover And Determinants Of Foreign Direct Investment: An Analysis Of Indian Manufacturing Industries

Author

Listed:
  • SMRUTI RANJAN BEHERA

    (Indian Institute of Technology Ropar, India)

Abstract

This paper examines the technology spillover from foreign direct investment (FDI) and subsequently, determines the factors for FDI-participation in Indian manufacturing industries. The result based on a two-equation model facilitating the link between labor productivity and foreign presence suggests that foreign presence plays an important role in the diffusion of technology from foreign firms to domestic firms, provided the recipient firms have the capacity to absorb and adopt the foreign technology. Furthermore, the results suggest that industries experiencing decline in the tariff cost exhibit stronger growth in labor productivity. Finally, we find that large domestic market size and highly productive domestic sectors, are likely to attract more FDI from abroad.

Suggested Citation

  • Smruti Ranjan Behera, 2015. "Technology Spillover And Determinants Of Foreign Direct Investment: An Analysis Of Indian Manufacturing Industries," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 40(3), pages 55-83, September.
    • Handle: RePEc:jed:journl:v:40:y:2015:i:3:p:55-83
    as

    Download full text from publisher

    File URL: http://www.jed.or.kr/full-text/40-3/3.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Nina Pavcnik, 2002. "Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(1), pages 245-276.
    2. Fernandes, Ana M., 2007. "Trade policy, trade volumes and plant-level productivity in Colombian manufacturing industries," Journal of International Economics, Elsevier, vol. 71(1), pages 52-71, March.
    3. Brian J. Aitken & Ann E. Harrison, 2022. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," World Scientific Book Chapters, in: Globalization, Firms, and Workers, chapter 6, pages 139-152, World Scientific Publishing Co. Pte. Ltd..
    4. Blomström, Magnus & Kokko, Ari, 2003. "The Economics of Foreign Direct Investment Incentives," EIJS Working Paper Series 168, Stockholm School of Economics, The European Institute of Japanese Studies.
    5. Wang, Jian-Ye & Blomstrom, Magnus, 1992. "Foreign investment and technology transfer : A simple model," European Economic Review, Elsevier, vol. 36(1), pages 137-155, January.
    6. Magnus Blomström & Ari Kokko & Mario Zejan, 2000. "Technology, Market Characteristics and Spillovers," Palgrave Macmillan Books, in: Foreign Direct Investment, chapter 10, pages 160-176, Palgrave Macmillan.
    7. Lichtenberg, Frank R. & Pottelsberghe de la Potterie, Bruno v., 1998. "International R&D spillovers: A comment," European Economic Review, Elsevier, vol. 42(8), pages 1483-1491, September.
    8. Brecher, Richard A. & Diaz Alejandro, Carlos F., 1977. "Tariffs, foreign capital and immiserizing growth," Journal of International Economics, Elsevier, vol. 7(4), pages 317-322, November.
    9. Fredrik Sjoholm, 1999. "Technology gap, competition and spillovers from direct foreign investment: Evidence from establishment data," Journal of Development Studies, Taylor & Francis Journals, vol. 36(1), pages 53-73.
    10. Mary Amiti & Jozef Konings, 2007. "Trade Liberalization, Intermediate Inputs, and Productivity: Evidence from Indonesia," American Economic Review, American Economic Association, vol. 97(5), pages 1611-1638, December.
    11. Elhanan Helpman, 1997. "R&D and Productivity: The International Connection," Harvard Institute of Economic Research Working Papers 1798, Harvard - Institute of Economic Research.
    12. Edwards, Sebastian, 1998. "Openness, Productivity and Growth: What Do We Really Know?," Economic Journal, Royal Economic Society, vol. 108(447), pages 383-398, March.
    13. Hall, Robert E, 1988. "The Relation between Price and Marginal Cost in U.S. Industry," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 921-947, October.
    14. Brecher, Richard A. & Findlay, Ronald, 1983. "Tariffs, foreign capital and national welfare with sector-specific factors," Journal of International Economics, Elsevier, vol. 14(3-4), pages 277-288, May.
    15. Franco, Chiara & Sasidharan, Subash, 2010. "MNEs, technological efforts and channels of export spillover: An analysis of Indian manufacturing industries," Economic Systems, Elsevier, vol. 34(3), pages 270-288, September.
    16. Sourafel Girma, 2005. "Absorptive Capacity and Productivity Spillovers from FDI: A Threshold Regression Analysis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(3), pages 281-306, June.
    17. Rashmi Banga, 2006. "The export-diversifying impact of Japanese and US foreign direct investments in the Indian manufacturing sector," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 37(4), pages 558-568, July.
    18. Hall, Bronwyn H. & Mairesse, Jacques, 1995. "Exploring the relationship between R&D and productivity in French manufacturing firms," Journal of Econometrics, Elsevier, vol. 65(1), pages 263-293, January.
    19. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 1-118.
    20. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    21. Ronald Findlay, 1978. "Relative Backwardness, Direct Foreign Investment, and the Transfer of Technology: A Simple Dynamic Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 92(1), pages 1-16.
    22. Smruti Ranjan Behera, 2014. "Local firms productivity spillover from foreign direct investment: a study of Indian manufacturing industries," International Journal of Technological Learning, Innovation and Development, Inderscience Enterprises Ltd, vol. 7(2), pages 167-190.
    23. W. M. Corden, 1966. "The Structure of a Tariff System and the Effective Protective Rate," Journal of Political Economy, University of Chicago Press, vol. 74, pages 221-221.
    24. Krishna, Pravin & Mitra, Devashish, 1998. "Trade liberalization, market discipline and productivity growth: new evidence from India," Journal of Development Economics, Elsevier, vol. 56(2), pages 447-462, August.
    25. Xu, Bin, 2000. "Multinational enterprises, technology diffusion, and host country productivity growth," Journal of Development Economics, Elsevier, vol. 62(2), pages 477-493, August.
    26. Mr. Ewe-Ghee Lim, 2001. "Determinants of, and the Relation Between, Foreign Direct Investment and Growth: A Summary of the Recent Literature," IMF Working Papers 2001/175, International Monetary Fund.
    27. Ari Kokko & Mario Zejan & Ruben Tansini, 2001. "Trade regimes and spillover effects of FDI: Evidence from Uruguay," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 137(1), pages 124-149, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sakshi Aggarwal & Debashis Chakraborty, 2022. "Which Factors Influence India’s Bilateral Intra-Industry Trade? Cross-Country Empirical Estimates," Working Papers 2260, Indian Institute of Foreign Trade.
    2. Nita Rudra & Meir Alkon & Siddharth Joshi, 2018. "FDI, Poverty, and the Politics of Potable Water Access," Economics and Politics, Wiley Blackwell, vol. 30(3), pages 366-393, November.
    3. Sugam Agarwal & Smruti Ranjan Behera, 2022. "Geographical concentration of knowledge and technology-intensive industries in India: empirical evidence from establishment-level analysis," Indian Economic Review, Springer, vol. 57(2), pages 513-552, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kohpaiboon, Archanun, 2006. "Foreign direct investment and technology spillover: A cross-industry analysis of Thai manufacturing," World Development, Elsevier, vol. 34(3), pages 541-556, March.
    2. Smruti Ranjan Behera, 2015. "Do Domestic Firms Really Benefit From Foreign Direct Investment? The Role Of Horizontal And Vertical Spillovers And Absorptive Capacity," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 40(2), pages 57-86, June.
    3. Smruti Ranjan Behera & Pami Dua & Bishwanath Goldar, 2012. "Foreign Direct Investment And Technology Spillover: Evidence Across Indian Manufacturing Industries," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 57(02), pages 1-23.
    4. Klaus E Meyer & Evis Sinani, 2009. "When and where does foreign direct investment generate positive spillovers? A meta-analysis," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 40(7), pages 1075-1094, September.
    5. Neil Foster-McGregor, 2012. "Innovation and Technology Transfer across Countries," wiiw Research Reports 380, The Vienna Institute for International Economic Studies, wiiw.
    6. Holger Görg & David Greenaway, 2016. "Much Ado about Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment?," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT Volume 53: World Scientific Studies in International Economics, chapter 9, pages 163-189, World Scientific Publishing Co. Pte. Ltd..
    7. Crespo, Nuno & Fontoura, Maria Paula, 2007. "Determinant Factors of FDI Spillovers - What Do We Really Know?," World Development, Elsevier, vol. 35(3), pages 410-425, March.
    8. Muhammed BENLI, 2016. "FDI and export spillovers using Heckman’s two step approach: Evidence from Turkish manufacturing data," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(4(609), W), pages 315-342, Winter.
    9. Fernandes, Ana M., 2007. "Trade policy, trade volumes and plant-level productivity in Colombian manufacturing industries," Journal of International Economics, Elsevier, vol. 71(1), pages 52-71, March.
    10. Harrison, Ann & Rodríguez-Clare, Andrés, 2010. "Trade, Foreign Investment, and Industrial Policy for Developing Countries," Handbook of Development Economics, in: Dani Rodrik & Mark Rosenzweig (ed.), Handbook of Development Economics, edition 1, volume 5, chapter 0, pages 4039-4214, Elsevier.
    11. smruti, Smruti Ranjan Behera, 2012. "Technology Spillover and Determinants of Foreign Direct Investment: An Analysis of Indian Manufacturing Industries," MPRA Paper 42178, University Library of Munich, Germany.
    12. Kuzyaeva Anastasia & Didenko Alexander, 2014. "Productivity spillovers in the Russian Federation: the case of the chemical market," Review of Business and Economics Studies, CyberLeninka;Федеральное государственное образовательное бюджетное учреждение высшего профессионального образования «Финансовый университет при Правительстве Российской Федерации» (Финансовый университет), issue 3, pages 55-74.
    13. Muhammed BENLI, 2016. "FDI and export spillovers using Heckman’s two step approach: Evidence from Turkish manufacturing data," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(4(609), W), pages 315-342, Winter.
    14. Shimaa Elkomy & Hilary Ingham & Robert Read, 2020. "The Impact of Foreign Technology & Embodied R&D On Productivity in Internationally-Oriented & High-Technology Industries in Egypt, 2006-2009," Working Papers 293574925, Lancaster University Management School, Economics Department.
    15. Greenaway, David & Görg, Holger, 2002. "Much Ado About Nothing? Do Domestic Firms Really Benefit from Foreign Investment?," CEPR Discussion Papers 3485, C.E.P.R. Discussion Papers.
    16. Natasha Agarwal & Chris Milner, 2011. "FDI Spillovers in China – Connecting the Missing Link between Micro and Macro," Discussion Papers 11/20, University of Nottingham, GEP.
    17. Seyoum, Mebratu & Wu, Renshui & Yang, Li, 2015. "Technology spillovers from Chinese outward direct investment: The case of Ethiopia," China Economic Review, Elsevier, vol. 33(C), pages 35-49.
    18. Ahmed, Gulzar & Arshad Khan, Muhammad & Afzal, Muhammad, 2015. "Trade Liberalization and Industrial Productivity: Evidence from Pakistan," MPRA Paper 70744, University Library of Munich, Germany, revised 15 Mar 2016.
    19. Peri, Giovanni & Urban, Dieter, 2006. "Catching-up to foreign technology? Evidence on the "Veblen-Gerschenkron" effect of foreign investments," Regional Science and Urban Economics, Elsevier, vol. 36(1), pages 72-98, January.
    20. Thi Ngoc Thuyen Truong & Juthathip Jongwanich & Eric D. Ramstetter, 2015. "Productivity spillovers from foreign multinationals and trade protection: firm-level analysis of Vietnamese manufacturing," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 29(2), pages 30-46, November.

    More about this item

    Keywords

    Foreign Direct Investment; Technology Spillover; Manufacturing Industries;
    All these keywords.

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jed:journl:v:40:y:2015:i:3:p:55-83. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sung Y. Park (email available below). General contact details of provider: https://edirc.repec.org/data/eccaukr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.