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Growth of the Firms and Investments in Innovations: An Empirical Investigation of the Indian Manufacturing Industry

Author

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  • Sukhdeep Singh

    (Institute of Development Studies Kolkata (IDSK))

  • Indrani Chakraborty

    (Institute of Development Studies Kolkata (IDSK))

Abstract

The paper investigates the effect of the growth in R&D on firms’ growth (measured by growth in sales) in the Indian manufacturing industry during 1995–2017. As R&D strategy and outcomes of the firms may be different in developing countries than the developed ones, a study of developing economy should be an important addition to the literature which has earlier focussed mainly on developed countries. Panel ARDL model has been used to empirically test the relationship between growth and R&D investments. It helps to observe the short-run as well as the long-run association between growth in R&D and sales. For testing the robustness of our findings, we have also applied the Panel VAR method. Panel VAR provides the empirical evidence without assuming a priori direction of causality between the growth of R&D and sales. The overall results from both the econometric techniques point out that the growth of investment in innovations has a positive yet weak/limited effect on the growth of firms in the Indian manufacturing industry. However, a separate analysis of the manufacturing sub-sectors indicates that the association between the two variables is relatively stronger in case of the sub-sectors which have experienced rising R&D intensity than those where it has remained stagnant. Another important finding is that there exists two-way causality among R&D growth and sales growth in the overall manufacturing industry, as well as in the sub-sectors with rising R&D intensity. Nevertheless, among the sub-sectors with stagnant R&D intensity, R&D growth does not Granger-cause sales growth, whereas sales growth leads to the growth of R&D investments.

Suggested Citation

  • Sukhdeep Singh & Indrani Chakraborty, 2021. "Growth of the Firms and Investments in Innovations: An Empirical Investigation of the Indian Manufacturing Industry," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 19(1), pages 87-122, March.
    • Handle: RePEc:spr:jqecon:v:19:y:2021:i:1:d:10.1007_s40953-020-00218-8
    DOI: 10.1007/s40953-020-00218-8
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    Cited by:

    1. Sukhdeep Singh, 2022. "R&D Spillovers and Product Market Competition," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 20(2), pages 379-399, June.

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