Academic journal article Indian Journal of Industrial Relations

R&D Spillovers & Productivity Growth: Evidence from Indian Manufacturing

Academic journal article Indian Journal of Industrial Relations

R&D Spillovers & Productivity Growth: Evidence from Indian Manufacturing

Article excerpt

This paper explores the linkage between R&D spillovers and productivity for a sample of Indian manufacturing firms for the period 2001-2012. The R&D spillovers is defined as the function of R&D (R&D, royalty and technical know-how) and information and communication technology (ICT). We consider two measures of productivity, namely total factor productivity (TFP) and labor productivity for analysis. Our results show that ICT, R&D and technical know-how impact TFP. For labor productivity, our results demonstrate that firms that are engaged in ICT and invest in technical know-how, are more productive than others. Thus, Indian manufacturing firms need to invest in information and communication technology, R&D and technical know-how to enhance their productivity. There are strong linkages among ICT, R&D, technical know-how and productivity


That the growth of total factor productivity (TFP) is energized by labor, capital and technology is a well-established fact in economics. Besides, new studies suggest that innovations, information & communication technology (ICT), learning and knowledge, trade and R&D spillovers also enhance the productivity within and across industries. Many studies indicated that international trade, FDI, ICT, R&D are the major channels of R&D spillovers (Miller & Upadhyay, 2000; Blalock & Simon, 2009, Mitra et al., 2016); however the findings have been mixed and do not establish a strong connection among these variables and productivity.

R&D Spillover & Productivity Growth

The linkage between R&D and productivity growth has been brought into focus by Griliches (1984; 1995). The empirical literature has analyzed R&D and its spillovers across countries, regions and industries. Across industries and firms level, the relationship between total factor productivity growth and R&D expenditure in the presence of inter-industry and international spillovers of technology was demonstrated by Hanel (2000) who stated that investing in R&D helps firms to innovate, increase the engineering capabilities and boost the absorption capacity to imbibe the industry-wide technologies and expertise. Essentially, R&D knowledge is typically set as an important driver of productivity growth, though this assumption has been challenged by Keller (1998). At macro level, Grossman & Helpman, (1990) showed that economic growth and productivity across countries can be enhanced through the adoption of new technology and its spillovers. Interestingly, these studies also revealed that technology gap between two parties drives the knowledge and R&D spillovers. They further demonstrated that absorptive capacity needs to exist in the form of R&D to bridge this gap. Clemes, Arifa and Gani (2003) stressed and brought the focus on developing human capital that can act as a catalyst for R&D spillovers.

The most interesting observation was given by Jaffe (1986) who demonstrated some empirical evidence on spillovers by creating a series on patent applications. This measure was used to evaluate homogeneity of research activities in the group of firms. Jaffe stated that external and in-house R&D efforts drive and impact the quantity of patent applications and the market value of the firm. Unfortunately this kind of measure cannot be constructed for the developing countries like India due to lack of data of patent and intellectual properties related information.

Cohen and Levinthal (1989) among others observed that to utilize the industry-wide R&D spillovers, a firm must invest in their own R&D center. They further indicated, if a firm in a less developed country would like to tap the benefit from the international R&D spillovers, they must purchase sophisticated technology from abroad, and above all perform in-house R&D to understand and improve upon the foreign technology. …

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