Foreign Direct Investment and Technology Spillovers: Evidence from the Indian Manufacturing Sector

Abstract

During the recent period, we observe that many countries compete with each other to attract foreign investment. When MNCs invest in a host country, it is assumed that a part of their technology spills to the host country firms. But the empirical studies on spillover effects of FDI have failed to find robust empirical results about the possibility of positive spillover effects. This study is an attempt to empirically examine the spillover effects from the entry of foreign firms using firm level data of Indian manufacturing industries for the period 1994-2002. We consider both the horizontal and vertical spillover effects of FDI. Consistent with the findings of the previous studies, we find no evidence of significant horizontal spillover effects. In contrast, we find negative vertical spillover effects, although it is not statistically significant.

Does Higher Productivity and Efficiency Lead to Spillover?: Evidence from Indian Manufacturing

“…The total emoluments and the number of mandays work for the year 2007-08 to 2009-10is extrapolated on the basis of the average growth in the last five years. This extrapolation is in line with Sasidharan (2006) and Saxena (2007).Accordingly, a time series database on the mandays work for each firm is drawn.…”

“…Notably, the study by Sasidharan (2006) reveals no significant vertical or horizontal spillover of FDI on manufacturing productivity. Similarly, Bergman's (2006) study on the Indian pharmaceutical industry does not find any positive impact of FDI on productivity spillover.…”

“…At the same time, Aitken and Harrison (1991) on Venezuela manufacturing also showed negative effects of foreign investment on industry's productivity. Similarly, in the context of India a study by Sasidharan (2006) reveals no significant vertical or horizontal spillover effects of FDI on manufacturing productivity. However, there are some studies, such as Rasiah (1995,2002) on the Malaysian economy, Barrel and Pain (1999) on four European economies, Sjohalm (1999) on the Indonesian economy, Hale and Long (2006) on Chinese firms, Haskel (2002) on the UK etc.…”

Exploring Firm-Level Innovation and Productivity in Developing Countries: The Perspective of Caribbean Small States

“…Other studies have found no positive spillover effects on innovation and productivity (Damijan and Knell, 2005;Vahter and Masso, 2007;Haddad and Harrison, 1993;Zukowska-Gangelmann, 2000). Lastly, studies have found a negative impact of FDI spillovers on innovation and productivity in local firms (Djankov and Hoekman, 1998;Girma, Gong, and Görg, 2006;Aitken and Harrison, 1999;Sasidharan, 2006;Fu, 2008Fu, , 2004Zhou, 2006). public funding, benefited from patent protection, exported its products, had an R&D department, or faced competition within the industry.…”

Economic Growth and Income Inequality in China, India and Singapore

“…Kathuria (2002) found positive spill-over evidence in India after implementation of reform in 1991. This finding is substantiated by Sasidharan (2006) whose results, based on firm-level data of Indian manufacturing industries between 1994 and 2002, failed to uncover positive spill-over, whether vertical or horizontal, of technology in India. Spillovers from FDI, during this period, were found to be quite weak.…”