IDEAS home Printed from https://ideas.repec.org/p/eab/develo/22492.html
   My bibliography  Save this paper

The Impact of R&D and Foreign Direct Investment on Firm Growth in Emerging-Developing Countries : Evidence from Indian Manufacturing Industries

Author

Listed:
  • Adamos Adamou

    (MSE)

  • Subash S

Abstract

This paper examines the impact of R&D and FDI on firm growth for a panel data of Indian manufacturing firms. We argue that besides age and size, FDI and R&D are essential determinants of firm growth. We use GMM estimation for fixed effects panel data models to control for endogenity of R&D and FDI. We find that an increase in current R&D induces higher growth across all industries; where as the effect of increase in FDI is mixed - higher growth in some industries and lower growth in some others. Furthermore, Gibrats law is not only rejected by our main model but it is also rejected by a unit root test for unbalanced panel datasets. This provides strong evidence in favor of our model. Finally, firm growth is negatively associated with its size and it is convex with respect to its age. The fact that firm growth is not diminishing convex but just convex with respect to age, contradicts the Jovanovics argument that younger firms tend to grow faster than their older counterparts. With respect to firm growth, the absence of learning-effects appears to be the main difference between emerging-developing and developed countries.

Suggested Citation

  • Adamos Adamou & Subash S, 2008. "The Impact of R&D and Foreign Direct Investment on Firm Growth in Emerging-Developing Countries : Evidence from Indian Manufacturing Industries," Development Economics Working Papers 22492, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:develo:22492
    as

    Download full text from publisher

    File URL: http://www.eaber.org/node/22492
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Georgios Fotopoulos & Helen Louri, 2004. "Firm Growth and FDI: Are Multinationals Stimulating Local Industrial Development?," Journal of Industry, Competition and Trade, Springer, vol. 4(3), pages 163-189, September.
    2. Klette, Tor Jakob & Griliches, Zvi, 2000. "Empirical Patterns of Firm Growth and R&D Investment: A Quality Ladder Model Interpretation," Economic Journal, Royal Economic Society, vol. 110(463), pages 363-387, April.
    3. Patrick Bajari & C. Lanier Benkard & Jonathan Levin, 2007. "Estimating Dynamic Models of Imperfect Competition," Econometrica, Econometric Society, vol. 75(5), pages 1331-1370, September.
    4. Roger Smeets, 2008. "Collecting the Pieces of the FDI Knowledge Spillovers Puzzle," World Bank Research Observer, World Bank Group, vol. 23(2), pages 107-138, March.
    5. Hall, Bronwyn H, 1987. "The Relationship between Firm Size and Firm Growth in the U.S. Manufacturing Sector," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 583-606, June.
    6. Evans, David S, 1987. "Tests of Alternative Theories of Firm Growth," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 657-674, August.
    7. Timothy Dunne & Mark J. Roberts & Larry Samuelson, 1989. "The Growth and Failure of U. S. Manufacturing Plants," The Quarterly Journal of Economics, Oxford University Press, vol. 104(4), pages 671-698.
    8. Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June.
    9. James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc.
    10. Francesca Lotti & Enrico Santarelli & Marco Vivarelli, 2003. "Does Gibrat's Law hold among young, small firms?," Journal of Evolutionary Economics, Springer, vol. 13(3), pages 213-235, August.
    11. Robert Becker & Edwin Burmeister (ed.), 1990. "Growth Theory," Books, Edward Elgar Publishing, volume 0, number 534.
    12. Pakes, Ariel & Ericson, Richard, 1998. "Empirical Implications of Alternative Models of Firm Dynamics," Journal of Economic Theory, Elsevier, vol. 79(1), pages 1-45, March.
    13. K. R. Shanmugam & Saumitra Bhaduri, 2002. "Size, age and firm growth in the Indian manufacturing sector," Applied Economics Letters, Taylor & Francis Journals, vol. 9(9), pages 607-613.
    14. Kumar, Nagesh, 2001. "Determinants of location of overseas R&D activity of multinational enterprises: the case of US and Japanese corporations1," Research Policy, Elsevier, vol. 30(1), pages 159-174, January.
    15. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-652, Special I.
    16. Fotopoulos, Georgios & Louri-Dendrinou, Eleni, 2002. "Corporate Growth and FDI: Are Multinationals Stimulating Local Industrial Development?," CEPR Discussion Papers 3128, C.E.P.R. Discussion Papers.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Schimke, Antje & Teichert, Nina & Ott, Ingrid, 2012. "Impact of local knowledge endowment on employment growth in nanotechnology," Working Paper Series in Economics 38, Karlsruhe Institute of Technology (KIT), Department of Economics and Business Engineering.
    2. Giorgio Canarella & Stephen M. Miller, 2017. "The Determinants of Growth in the Information and Communication Technology (ICT) Industry: A Firm-Level Analysis," Working papers 2017-12, University of Connecticut, Department of Economics.
    3. Antje Schimke, 2011. "Factors Affecting the Growth of Manufacturing Firms - Analysis of Growth Stages: A Case of German Firms," ERSA conference papers ersa10p1386, European Regional Science Association.
    4. Toth, Jozsef, 2015. "Value creation and capturing: the case of the Hungarian agri-food SMEs," 89th Annual Conference, April 13-15, 2015, Warwick University, Coventry, UK 204229, Agricultural Economics Society.
    5. Clemente Ruiz Durán, 2014. "Mexico: auto industry and patenting in a technological dependent economy," Chapters,in: Intellectual Property for Economic Development, chapter 10, pages 240-263 Edward Elgar Publishing.
    6. József TÓTH, 2013. "Trust – Networking – Innovation," Proceedings of the INTERNATIONAL MANAGEMENT CONFERENCE, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 7(1), pages 510-519, November.

    More about this item

    Keywords

    R&D; foreign direct investment; panel data; firm growth;

    JEL classification:

    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eab:develo:22492. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shiro Armstrong). General contact details of provider: http://edirc.repec.org/data/eaberau.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.