Spillover Effects of Research and Development, Exports and Foreign Investment on Productivity

Abstract

The economic reforms in India since the early 1990s have aimed to improve the productivity and competitiveness of major industries. This article examines direct and indirect (spillover) effects from research and development (R&D), exporting activities and foreign direct investment (FDI) on the productivity of foreign and domestic manufacturing firms. Our empirical model employs data from over 1,000 Indian manufacturing firms between 1994 and 2008. With a balanced panel, robust estimation techniques including generalized method of moment (GMM) and system-GMM (sys-GMM) are employed for our empirical analysis. In most cases, our findings indicate that foreign presence has a significant positive spillover effect on the productivity of Indian manufacturing firms when compared to alternative spillovers from R&D and export initiatives. The spillover effects may vary due to R&D efforts and exporting activities. We also find that spillovers may vary between FDI and non-FDI firms and with the technological advances of industries.