Do Political Connections Spur Technology Transfer? Evidence from India from a Governance Perspective

Abstract

Corporate governance is vital in the effective implementation of domestic and foreign economic policies. In this context, this study examines the role of political connections in the Indian context to understand their impact on firms' productivity and technology transfer. We ask the following research questions: First, what is the nature of the relationship between political connection and productivity, and does this relationship explain firms' productivity and innovation efforts? Second, do political connections explain the extent of technology transfer through backward, forward, and horizontal technology spillovers? The study uses handpicked data on political donations made by Indian firms to contribute to the political connections literature in the emerging markets context. It is the first to study technology transfer and political connections explicitly. The political donations also reveal that there are strong and weak political connections in India depending on whether a firm donates to a single party or to parties. The empirical inference is that politically connected firms experience negative effects on their total factor productivity and research and development expenditure from their political connections. The negative impact implies that a political connection is a non-productive resource for the firm's productivity and innovation. However, for strongly politically connected firms only we find a positive backward spillover effect, suggesting a need to improve corporate governance regulations. Overall, the study offers new insights into corporate governance and technology transfer.