Foreign Firms and Technology Transfer Knowledge Spillovers to Indian Manufacturing Firms

The present paper uses techniques from stochastic production frontier and panel data literature to test for the spillover hypothesis that 'presence of foreign firms and disembodied technology import in a sector leads to higher productivity growth for domestic firms'. The study uses panel data for 368 medium and large-sized Indian manufacturing firms for the period 1975-76 to 1988-89. The results indicate that the domestic firms tend to benefit from foreign-owned firms irrespective of the technological and production requirement of the sectors. However, once the initial level of productivity gap is considered, it is firms belonging to the 'scientific' subgroup that experience knowledge spillovers from the presence of foreign-owned firms. The other source of knowledge spillover i.e., disembodied technology import in the sector does not attain significance in either variant of the model. Furthermore, the result of previous studies that find knowledge spillovers in low-tech sectors where technology-gap is smaller between foreign-owned firms and local firms is also not validated in the present study.Foreign Enterprises, Technology Transfer, Industry, India