The present paper employs techniques from stochastic production frontier and panel data literature to test a spillover hypothesis for large sized ®rms that`presence of foreign-owned ®rms and foreign technical capital stock in a sector leads to reduced dispersion in eciency in the sector and fall is higher for the ®rms that invest in R&D activities'. Dispersion being a relative concept, it may still fall if both the leading foreign ®rm and domestic ®rms show fall in technical eciency over the period and the fall for the leader is higher and vice versa. Given the focus of the study, where concern is for the learning by the domestic ®rms, the study tries to get around with the problem partially, by testing the hypothesis for those local ®rms that have shown productivity improvement over the period. Results suggest that foreign-owned ®rms are close to the frontier in 13 of the total 26 sectors studied. Spillovers result for these 13 sectors indicate that there exist negative spillovers from the presence of foreign ®rms in the sector, but available foreign technical capital stock has a positive impact. Interesting dierences emerge when the sample is bifurcated into scienti®c and non-scienti®c subgroups. Results for the scienti®c subgroup indicate that the indirect gains or spillovers are not automatic consequence of foreign ®rm's presence, but they depend to a large extent on the eorts of local ®rms to invest in learning or R&D activities so as to decodify the spilled knowledge. On the other hand, the evidence of spillovers to non-scienti®c non-FDI ®rms is not very strong.

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This paper uses techniques from a stochastic production frontier (i.e., the best practice technology used in the industry vis-a-vis average practised technology) and panel data literature to test for the spillover hypothesis that 'presence of foreign-owned firms and disembodied technology import in a sector leads to higher productivity growth for domestic firms'. The study uses panel data for 368 medium and largesized Indian manufacturing firms for the period 1975-1976 to 1988-1989. The results indicate that there exists positive spillovers from the presence of foreign-owned firms but the nature and type of spillovers vary depending upon the industries to which the firms' belong. There exist significant positive spillovers for the domestic firms belonging to the 'scientific' subgroup provided the firms themselves possess significant R&D capabilities. However, for the 'non-scientific' subgroup presence of foreign firms itself forces the local firms to be more productive by inducing greater competition. However, the results change marginally when the initial level of productivity (i.e. the technology-gap) is considered.

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