Vadlamannati, Krishna Chaitanya (2009): Impact of Foreign Direct Investments on Industrial Productivity: A Subnational Study of India.
Download (185kB) | Preview
The paper uses unique aggregate industry-level dataset at subnational level from India to measure the effects of foreign investments on the productivity of domestic firms. Using pooled regression analysis with fixed effects for the period 2002 – 2005, we find that: (a) foreign investments have significant positive effect on productivity of domestic firms. However, the coefficient values of FDI are smaller, suggesting that the positive effects are marginal. (b) When FDI inflows are controlled for in the cross-section productivity regression, the relationship between the share of foreign technical collaborations and productivity of domestic firms increases significantly. This supports the argument that foreign technical collaborations increase productivity in part through its effect on the FDI inflows. (c) Another interesting finding is that there is no strong evidence to show that this positive effect is state-heterogeneous. In turn, we find partial effects of FDI are marginally higher in non-industrial states. Thus, we suggest that domestic firms can reap rich dividends if the FDI inflows are evenly distributed across the regions, particularly concentrating the efforts on attracting FDI into non-industrial states.
|Item Type:||MPRA Paper|
|Original Title:||Impact of Foreign Direct Investments on Industrial Productivity: A Subnational Study of India|
|Keywords:||FDI; Productivity; India|
|Subjects:||O - Economic Development, Technological Change, and Growth > O1 - Economic Development
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity
|Depositing User:||Krishna Chaitanya Vadlamannati|
|Date Deposited:||08. Mar 2009 02:24|
|Last Modified:||14. Feb 2013 19:03|
Aghion P & Howitt P (1992): A Model of Growth through Creative Destruction, Econometrica, 60, pp.
Aschauer, David A. (1989): Public Investment and Productivity Growth in the Group of Seven, Economic Perspectives, (13) pp. 17-25.
Aitken, Brain & Harrison E Ann (1999): Do Domestic Firms Benefit from FDI? Evidence from Venezuela, American Economic Review, 89(3), pp. 605-618
Bloomstrom, M & E. Wolff (1994): Multinational Corporations and Productivity Convergence in Mexico, in W. Baumol, R. Nelson and E. Wolff (eds.), Convergence of Productivity: Cross-National Studies and Historical Evidence. Oxford: Oxford University Press.
Blomstrom, M (1986): FDI & Productivity Efficiency: The case of Mexico, Journal of Industrial Economics, 35(1), pp. 97-110.
Beck, N. (2001): Time-series cross-section data: What have we learned in the past few years?, Annual Review of Political Science, 4, pp. 271-293.
Baltagi, Badi H (2005): Econometric Analysis of Panel Data (3rd edition), Chichester, UK: John Wiley & Sons.
Cardoso, Eliana (1993): Private Investment in Latin America", Economic Development and Cultural Change, (41) pp. 833-848.
Caves, R. (1996): Multinational Enterprises and Economic Analysis, 2nd edition (Cambridge: Cambridge University Press).
De Mello, Jr., Luiz R. (1997): Foreign Direct Investment in Developing Countries and Growth: A Selective Survey, The Journal of Development Studies, 34, pp. 1- 34.
Globerman, Steven (1979): FDI & Spillover Efficiency benefits n Canadian Manufacturing Industries, Canadian Journal of Economics, 12(1), pp. 42-46.
Goldar B (2000): Productivity Growth in Indian Manufacturing in the 1980s and 1990s, presented at conference on Center for Development Economics, Delhi School of Economics, ‘Industrialization in a Reforming Economy: A Quantitative Assessment”, New Delhi, December 20-22.
Goldar B (2004): Indian Manufacturing: productivity Trends in Pre- and Post-Reforms Periods, Economic & Political Weekly, November, pp. 5033-5043.
Goldar B & Kumari, Anita (2003): Import Liberalization & Productivity Growth in Manufacturing Industries in the 1990s”, Developing Economies, 41(4), pp. 436-460.
Green, Joshua & Delano Villanueva (1991): Private Investment in Developing Countries: An Empirical Analysis, IMF Staff Papers, Vol. 38, 1991, pp. 65-87.
Glass, A. J. & Saggi K. (2002): Multinational Firms and Technology Transfer, Scandinavian Journal of Economics, 104(4), pp. 495–513.
Huang, Jr.-Tsung (2004): Spillovers from FDI in China, Contemporary Economic Policy, 22, pp. 13-25.
Hsieh, Chang-Tai (2006): Do Domestic Firms Benefit from FDI?, Working paper No. 2006-30, December, International Center for Study of East Asian Development, Kitakyushu.
Markusen, J. & Venables V. (1999): Foreign Direct Investment as a Catalyst for Industrial Development, European Economic Review, 43(2), pp. 335–56.
Peri G. & Urban D. (2006): Catching up to foreign technology? Evidence on ‘Veblen-Gerschenkron’ effect of FDI, Regional Science & Urban Economics, 36, pp. 72-98.
Ramirez, Miguel D. (2000): Foreign Direct Investment in Mexico: A Cointegration Analysis, The Journal of Development Studies, 37, pp.138-162.
Ram, Rati, & K.H. Zhang (2002): Foreign Direct Investment and Economic Growth: Evidence from Cross-Country Data for the 1990s, Economic Development and Cultural Change, 51, pp. 205-215.
Romer P.M (1990): Endogenous Technological Change, Journal of Political Economy, 94(5), pp.
Rogers, William H, (1993): Regression Standard Errors in Clustered Samples, Stata Technical Bulletin, 13, pp. 19-23.
Solow, Robert M. (1956): A Contribution to the Theory of Economic Growth, Quarterly Journal of Economics, 70, pp. 65-94
Trivedi P, Prakash A, Sinate D (2000): Productivity in Major Manufacturing Industries in India: 1973-74 to 1997-98, Development Research Group Study, No. 20, Department of Economic Analysis & Policy, RBI, Mumbai.
Unel, Bulent (2003): Productivity Trends in India’s Manufacturing Sectors in the Last Two Decades, IMF Working Paper, No. WP/03/22.
Wang, J.Y (1990): Growth, technology transfer and the long run theory of international capital movements, Journal of International Economics, 29, pp. 255-271.
Williams, Rick L (2000): A Note on Robust Variance Estimation for Cluster-correlated Data, Biometrics, 56, pp. 645-46.