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Technology Spillover and Determinants of Foreign Direct Investment: An Analysis of Indian Manufacturing Industries

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  • smruti, Smruti Ranjan Behera
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    Abstract

    This paper examines the spillover effect of foreign direct investment (FDI) and determinant of FDI across Indian manufacturing industries. The result, based on two-equation model that allows for the two-way link between labor productivity of locally owned industries and foreign presence provide evidence that foreign presence brings new channels of knowledge and technology spillover to domestic industrial firms. We find that intermediate factors like R&D intensity and technology import intensity can impact positively the productivity of domestic firms. Furthermore, we find that bigger market size and highly productive domestic sectors are likely to attract more foreign capital into Indian industries.

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    File URL: http://mpra.ub.uni-muenchen.de/42178/
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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 42178.

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    Date of creation: 01 Aug 2012
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    Handle: RePEc:pra:mprapa:42178

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    Keywords: Foreign Direct Investment; Technology Spillover; Manufacturing; Panel Cointegration; Unit Root Tests;

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    1. Madsen, Jakob B. & Saxena, Shishir & Ang, James B., 2010. "The Indian growth miracle and endogenous growth," Journal of Development Economics, Elsevier, vol. 93(1), pages 37-48, September.
    2. Kokko, Ari, 1994. "Technology, market characteristics, and spillovers," Journal of Development Economics, Elsevier, vol. 43(2), pages 279-293, April.
    3. Sourafel Girma, 2003. "Absorptive capacity and productivity spillovers From FDI: a threshold regression analysis," European Economy Group Working Papers 25, European Economy Group.
    4. Robert E. Hall, 1986. "The Relation Between Price and Marginal Cost in U.S. Industry," NBER Working Papers 1785, National Bureau of Economic Research, Inc.
    5. Findlay, Ronald, 1978. "Relative Backwardness, Direct Foreign Investment, and the Transfer of Technology: A Simple Dynamic Model," The Quarterly Journal of Economics, MIT Press, vol. 92(1), pages 1-16, February.
    6. Noh-Sun Kwark & Yong-Sang Shyn, 2006. "International R&D spillovers revisited: Human capital as an absorptive capacity for foreign technology," International Economic Journal, Taylor & Francis Journals, vol. 20(2), pages 179-196.
    7. Easterly, William & DEC, 1993. "How much do distortions affect growth?," Policy Research Working Paper Series 1215, The World Bank.
    8. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
    9. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 407-37, May.
    10. Hamilton, James D. & Monteagudo, Josefina, 1998. "The augmented Solow model and the productivity slowdown," Journal of Monetary Economics, Elsevier, vol. 42(3), pages 495-509, October.
    11. Suma Athreye & Sandeep Kapur, 2004. "Industrial Concentration in a Liberalising Economy: a Study of Indian Manufacturing," Open Discussion Papers in Economics 51, The Open University, Faculty of Social Sciences, Department of Economics.
    12. Fosfuri, Andrea & Motta, Massimo & Rønde, Thomas, 1999. "Foreign Direct Investment and Spillovers through Workers' Mobility," CEPR Discussion Papers 2194, C.E.P.R. Discussion Papers.
    13. Helpman, E., 1998. "R&D and Productivity : The International Connection," Papers 10-98, Tel Aviv.
    14. Sjöholm, Fredrik, 1997. "Technology Gap, Competition and Spillovers from Direct Foreign Investment: Evidence from Establishment Data," Working Paper Series in Economics and Finance 212, Stockholm School of Economics.
    15. Ang, James, 2009. "Do Financial Sector Policies Promote Innovative Activity in Developing Countries? Evidence from India," MPRA Paper 14495, University Library of Munich, Germany.
    16. repec:acb:camaaa:2008-29 is not listed on IDEAS
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