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FDI and Spillover Effects in the Indian Pharmaceutical Industry

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  • Annika Bergman

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Abstract

Foreign Direct Investment (FDI) is widely considered to be beneficial for the host economy since it can result in positive externalities (spillover effects) through various transmission channels, for instance, transfer of technology, increased competition and imitation effects. This study analyses intra-industry spillover effects of FDI in the pharmaceutical industry in India. A literature review, interviews and an econometric analysis are carried out in order to examine FDIs impact on the industry. The Indian pharmaceutical industry has developed through a range of governmental incentives and, foreign firms that have invested in the industry, have additionally contributed to the growth. The results are mixed. Spillover effects are visible in many of the spillover channels from FDI and the regression results show that firms with foreign ownership experience higher productivity levels. However, the correlation between FDI and productivity in domestic firms is insignificant, due to various reasons depending on whether the benefits from FDI are materialized, local firms absorptive capability and factors such as the market structure, competitiveness, trade and technological policies. It is in the interest of the state to provide public policies and a sound economic environment to encourage benefit from FDI.

Suggested Citation

  • Annika Bergman, 2006. "FDI and Spillover Effects in the Indian Pharmaceutical Industry," Finance Working Papers 22084, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:financ:22084
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    File URL: http://www.eaber.org/node/22084
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    References listed on IDEAS

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    1. Erol Taymaz & Aykut Lenger, 2004. "Multinational Corporations as a Vehicle for Productivity Spillovers in Turkey," DRUID Working Papers 04-09, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
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    Cited by:

    1. Nagesh KUMAR, 2008. "Internationalization of Indian Enterprises: Patterns, Strategies, Ownership Advantages, and Implications," Asian Economic Policy Review, Japan Center for Economic Research, vol. 3(2), pages 242-261, December.
    2. Bishwanath Goldar & Karishma Banga, 2018. "Country Origin of Foreign Direct Investment in Indi an Manufacturing and Its Impact on Productivity of Domestic Firms," Working Papers id:12730, eSocialSciences.
    3. Helena Maria Ferreira Rêgo & Celeste Amorim Varum & Anabela Carneiro, 2010. "Empresas Estrangeiras e Capital Humano nos Serviços Intensivos em Conhecimento," Notas Económicas, Faculty of Economics, University of Coimbra, issue 32, pages 06-21, December.
    4. Nagesh Kumar, 2007. "Investment Provisions in Regional Trading Arrangements in Asia : Relevance, Emerging Trends, and Policy Implications," Trade Working Papers 22109, East Asian Bureau of Economic Research.
    5. Vijaykumar Dhannur & Ashwin R. John, 2021. "Foreign direct investment and export performance using the hierarchical Bayesian vector autoregression framework," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(7), pages 1679-1685, October.
    6. Sachin Chaturvedi, 2008. "Emerging Patterns in Architecture for Management of Economic Assistance and Development Cooperation : Implications and Challenges for India," Development Economics Working Papers 22092, East Asian Bureau of Economic Research.

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    More about this item

    Keywords

    Foreign Direct Investments; FDI; spillover effects; India; pharmaceutical industry;
    All these keywords.

    JEL classification:

    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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