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Foreign Direct Investment and R&D: Substitutes or Complements--A Case of Indian Manufacturing after 1991 Reforms

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  • Sasidharan, Subash
  • Kathuria, Vinish

Abstract

Summary The entry of foreign firms in India since the reforms forces domestic firms to undertake R&D activities or import technology so as to compete with them. This study examines the relationship between FDI and R&D of the domestic firms in the post-liberalization regime. The study uses unbalanced panel data for 1,843 Indian manufacturing firms operating during the period 1994-2005 and corrects for the self-selection problem by using a Heckman-two step procedure. The analysis involving full sample does not give a clear picture of the impact of FDI on the innovation strategies of domestic firms. Interesting results emerge, when analysis is carried out according to different sub-samples--based on foreign-ownership and technology intensity of the industry. FDI and R&D are found to be complements when sample is divided on the bases of equity ownership. FDI inflow induces foreign-owned firms in high tech industries and firms in minority ownership to invest in R&D.

Suggested Citation

  • Sasidharan, Subash & Kathuria, Vinish, 2011. "Foreign Direct Investment and R&D: Substitutes or Complements--A Case of Indian Manufacturing after 1991 Reforms," World Development, Elsevier, vol. 39(7), pages 1226-1239, July.
  • Handle: RePEc:eee:wdevel:v:39:y:2011:i:7:p:1226-1239
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    References listed on IDEAS

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    Cited by:

    1. Chiara Franco & Subash Sasidharan, 2009. "MNEs and Export Spillovers: An Analysis of Indian Manufacturing Industries," Working Papers 2009-049, Madras School of Economics,Chennai,India.
    2. Xie, Zhenzhen & Li, Jiatao, 2015. "Demand Heterogeneity, Learning Diversity and Innovation in an Emerging Economy," Journal of International Management, Elsevier, vol. 21(4), pages 277-292.
    3. Sasidharan, Subash & Jijo Lukose, P.J. & Komera, Surenderrao, 2015. "Financing constraints and investments in R&D: Evidence from Indian manufacturing firms," The Quarterly Review of Economics and Finance, Elsevier, vol. 55(C), pages 28-39.
    4. repec:spr:jqecon:v:15:y:2017:i:2:d:10.1007_s40953-016-0056-1 is not listed on IDEAS
    5. Yuandi Wang & Lutao Ning & Jian Li & Martha Prevezer, 2016. "Foreign Direct Investment Spillovers and the Geography of Innovation in Chinese Regions: The Role of Regional Industrial Specialization and Diversity," Regional Studies, Taylor & Francis Journals, vol. 50(5), pages 805-822, May.
    6. Jiang, Marshall S. & Branzei, Oana & Xia, Jun, 2016. "DIY: How internationalization shifts the locus of indigenous innovation for Chinese firms," Journal of World Business, Elsevier, vol. 51(5), pages 662-674.
    7. repec:eee:ecmode:v:70:y:2018:i:c:p:67-77 is not listed on IDEAS
    8. repec:eee:ecmode:v:70:y:2018:i:c:p:447-457 is not listed on IDEAS
    9. Kang, Byeongwoo & Nabeshima, Kaoru & Cheng, Fang-Ting, 2015. "Avoiding the middle income trap : indigenous innovative effort vs foreign innovative effort," IDE Discussion Papers 509, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    10. Rosa Jordá-Borrell & Francisca Ruiz-Rodríguez & Reyes González-Relaño, 2015. "Factors and taxonomy of technology purchase (TP) by internationalized innovative companies in peripheral European regions," Papers in Regional Science, Wiley Blackwell, vol. 94, pages 139-174, November.

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