Innovation and firm growth in agricultural inputs industry: empirical evidence from India

Purpose - Innovation strategy and its outcomes may be different for agricultural input firms in developing countries than those operating in developed countries; hence, a study of developing economy should be an important addition to the literature which has earlier focussed mainly on developed countries. Indian firms which were previously catering to domestic demand are now the exporters of major agricultural machinery such as tractors and pesticides. Design/methodology/approach - Rapid growth in demand for the agricultural inputs and improvement in technology implementations have led us to study the performance and transformation of these input industries. An empirical analysis was performed on the listed agricultural input firms during 2001–2019 to investigate the relationship between the R&D efforts and growth of firms in the seed, pesticide, fertiliser and agricultural machinery industries using the system-generalised methods of moments (GMM) technique on the panel of 1,320 firm-year observations. Findings - The findings reveal that investments in innovations have a positive and lagged effect on the growth of firms in the Indian agricultural inputs industry. A further analysis reveals that younger firms grow faster when they invest in R&D. More specifically, the author finds evidence in the case of the agricultural inputs industry that import of raw materials negatively affects the firms' growth (FG) and export intensity (EI) positively affects the growth in the case of R&D firms. Investments in R&D are also seen to enable firms to reap benefits from externalities present in the industry. Research limitations/implications - This study suggests that the government should encourage the industries to invest optimally in R&D projects by providing favourable fiscal treatments and R&D subsidies which are observed to have positive effects in various developed countries. Originality/value - There are very few studies that have explored the impact of R&D expenditure on the firm performance in agricultural inputs industry, especially in an emerging economy context like India.