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R&D and productivity in the Indian pharmaceutical firms

Sharma, Chandan (2011): R&D and productivity in the Indian pharmaceutical firms.

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Abstract

Recent researches for developing countries suggest knowledge generating activates is no silver bullet for productivity growth. In this context, this paper examines the impact of R&D activities on firms’ performance for the Indian pharmaceutical industry by utilizing the data of the post reform period (1994-2006). The empirical analysis is performed in two stages. In first stage, we examine the relative productivity performance of R&D vis-à-vis non- R&D. Subsequently, we construct two empirical frameworks, namely, growth accounting and production function. Results of analysis indicate that R&D firms have productivity edge over non- R&D firms. Regression results based on the growth accounting framework suggest that R&D intensity has a positive and significant effect (15%) on TFP. The results also confirm that the performance of foreign firms operating in the industry is more sensitive towards R&D than the local firms. Furthermore, the estimation results of the production function approach indicate that the output elasticity to R&D capital varies from 10% to 13%. Therefore, we support the argument that ‘manna from heaven’ impact is large and significant.

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