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Productivity and technology diffusion in India: The spillover effects from foreign direct investment

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  • Fujimori, Azusa
  • Sato, Takahiro

Abstract

In this paper, we examine the spillover effects from foreign direct investment (FDI) in the Indian manufacturing industries under the capital liberalisation period using macro aggregated panel data (1995–2004). In the first step, we estimate the total factor productivity (TFP) of each industry using a Cobb–Douglas-type production function. In the second step, we examine the relationship between the level of TFP and the level of FDI in each industry, where we distinguish FDI spillover effects two types: short run and long run. In addition, we test FDI spillover both as an intra-industry effect and an inter-industry effect, also called backward linkage. Our main findings are that the FDI stock increases the TFP, especially through backward linkage, although the TFP level fell in the short run.

Suggested Citation

  • Fujimori, Azusa & Sato, Takahiro, 2015. "Productivity and technology diffusion in India: The spillover effects from foreign direct investment," Journal of Policy Modeling, Elsevier, vol. 37(4), pages 630-651.
    • Handle: RePEc:eee:jpolmo:v:37:y:2015:i:4:p:630-651
    DOI: 10.1016/j.jpolmod.2015.04.002
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    13. Ha, Van & Holmes, Mark J. & Tran, Tuyen Quang, 2022. "Does foreign investment crowd in domestic investment? Evidence from Vietnam," International Economics, Elsevier, vol. 171(C), pages 18-29.
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    15. Wang, Li-Hsun & Lin, Chu-Hsiung & Fung, Hung-Gay & Kao, Tzu-Chuan, 2019. "Foreign direct investment and downside risk: Evidence from Taiwan," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
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    20. Ahmad, Mahyudin & Hall, Stephen G., 2017. "Economic growth and convergence: Do institutional proximity and spillovers matter?," Journal of Policy Modeling, Elsevier, vol. 39(6), pages 1065-1085.
    21. Azusa Fujimori & Manabu Furuta & Takahiro Sato, 2020. "Technological Diffusion through Foreign Direct Investment: A Firm-level Analysis of Indian Manufacturing Industries," Discussion Paper Series DP2020-13, Research Institute for Economics & Business Administration, Kobe University, revised Jul 2020.
    22. Doytch, Nadia & Uctum, Merih, 2019. "Spillovers from foreign direct investment in services: Evidence at sub-sectoral level for the Asia-Pacific," Journal of Asian Economics, Elsevier, vol. 60(C), pages 33-44.
    23. Paitoon Wiboonchutikula & Chayanon Phucharoen & Nuchit Pruektanakul, 2016. "Spillover Effects Of Foreign Direct Investment On Domestic Manufacturing Firms In Thailand," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(02), pages 1-32, June.
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    More about this item

    Keywords

    Quality ladder model; FDI spillovers; Productivity; Indian economy;
    All these keywords.

    JEL classification:

    • C82 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Macroeconomic Data; Data Access
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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