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The impact of imported and domestic technologies on productivity : evidence from Indian manufacturing firms

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Title: The impact of imported and domestic technologies on productivity : evidence from Indian manufacturing firms
Authors: Hasan, Rana
LC Subject Headings: Industrial productivity - India
Technology transfer - India
Issue Date: 2000
Publisher: Honolulu: East-West Center
Series/Report no.: East-West Center working papers. Economics series ; no. 6
Abstract: Proponents of trade liberalization in developing countries often argue that one of its most important benefits is that it enables firms in developing countries to access the international knowledge base by importing technology in both disembodied form (i.e., as technological know-how) as well as embodied form (i.e., embodied in imported capital goods). Opponents of trade liberalization argue otherwise. In addition to doubting that there are significant gains to be had from utilizing foreign technologies in developing country contexts, they believe that imports of technology dampen local efforts at developing new technology with negative consequences for local capabilities and long-run growth prospects.

This paper utilizes panel data on a sample of Indian manufacturing firms for the years 1977-87 to examine these views. Production function estimates reveal that imported technologies, especially those of disembodied nature and obtained through contractual arrangements with foreign firms, impact productivity positively and significantly. Firms' own R&D efforts, on the other hand, are not very productive. Finally, while domestically produced capital goods impact productivity positively and significantly, their impact appears to stem from the technological know-how imported by domestic producers of capital goods.

Although these findings support the optimism of liberalizers that foreign technologies represent an important opportunity for productivity enhancement for developing country firms, the estimates of this paper also lend support to the notion that a liberal import policy will dampen local efforts at developing new technologies. More specifically, the estimates reveal that firms do not need to undertake significant R&D efforts to utilize imported technologies effectively. Thus, taken together the results suggest that while firms in India's recently liberalized economic environment will be able to raise their productivity by importing greater amounts of foreign technologies, they will also have less incentives to carry out their own R&D. To the extent that local efforts at R&D are a "good" to be encouraged, the challenge for public policy will be to devise policy tools that are able to encourage local R&D, but not through a trade policy which blocks an important and direct channel by which firms can raise productivity.
Description: For more about the East-West Center, see
Pages/Duration: 36, [11] pages
Appears in Collections:Economics [Working Papers]

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