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Does Productivity Differ in Domestic and Foreign Firms? Evidence from the Indian Machinery Industry



    () (FORE School of Management)


This study aims to evaluate the productivity performance of foreign and domestic firms of the machinery industry in India. Using information of more than 200 firms of three sub-industries namely electrical, electronics and non-electrical, we compare both types of firms’ total factor productivity (TFP) for the period of 1994-2006. At the first stage, our empirical analysis utilizes a non-parametric approach based on the principle of first order stochastic dominance. Comparing the distributions of the measures of firms’ performance across the groups, we find that the distributions for foreign firms dominate that of domestically owned Indian firms in two industries. In the next stage, the study estimates determinants of productivity growth of firms. The results of our analysis suggest that in the electrical industry foreign ownership matters, however, in other two industries there is no significant difference between both types of firms. The results also reveal that those firms which import and have in-house R&D facilities are more productive. Finally, the role of public infrastructure is found to be vital in the firms’ productivity growth for the sample of industries considered.

Suggested Citation

  • Sharma, Chandan, 2010. "Does Productivity Differ in Domestic and Foreign Firms? Evidence from the Indian Machinery Industry," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 45(1), pages 87-110.
  • Handle: RePEc:dse:indecr:0016

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    References listed on IDEAS

    1. R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, vol. 30(9), pages 1078-1092, September.
    2. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
    3. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
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    Cited by:

    1. Chandan Sharma, 2016. "R&D, Technology Transfer And Productivity In The Indian Pharmaceutical Industry," International Journal of Innovation Management (ijim), World Scientific Publishing Co. Pte. Ltd., vol. 20(01), pages 1-24, January.
    2. Awadhesh Pratap SINGH, 2016. "Do Technology Spillovers Accelerate Performance of Firms? Unravelling a Puzzle from Indian Manufacturing Industry," Economics and Applied Informatics, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, issue 3, pages 108-120.
    3. Sharma, Chandan, 2011. "R&D and productivity in the Indian pharmaceutical firms," MPRA Paper 31681, University Library of Munich, Germany.
    4. Sharma, Chandan & Mishra, Ritesh Kumar, 2015. "International trade and performance of firms: Unraveling export, import and productivity puzzle," The Quarterly Review of Economics and Finance, Elsevier, vol. 57(C), pages 61-74.

    More about this item


    Total Factor Productivity; Machinery Industry; Foreign firms;

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L64 - Industrial Organization - - Industry Studies: Manufacturing - - - Other Machinery; Business Equipment; Armaments
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General


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