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Does Higher Labour Market Flexibility Discourage R&D? Firm-Level Evidence from India’s Organised Manufacturing

Author

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  • Gopal Krishna Roy

    (Madras School of Economics)

  • Amaresh Dubey

    (Jawaharlal Nehru University)

Abstract

The empirical evidence on the association between labour market flexibility and research & development (R&D) activities of firms is limited only to developed economies. In this research note, we examine the relationship between labour market flexibility and the R&D decisions of firms in India's organised manufacturing. Using a cross-section of manufacturing firms from the Annual Survey of Industries (ASI) 2015–16 unit-level data, we model the R&D decision of firms as a two-step process. We use Cragg's Double-hurdle model that examines the probability of undertaking R&D in the first stage and the extent of R&D expenditure Amongst the R&D-performing firms in the second stage. Controlling for the firm-specific determinants of R&D expenditure, we find that the spatial variation in labour market flexibility is negatively and significantly associated with the extent of R&D expenditure of R&D-performing Indian firms. We extend the analysis by proxying R&D investment with the factories' net investment in plant and machinery. We found a similar negative correlation between labour market flexibility and the net value of plant and machinery of factories.

Suggested Citation

  • Gopal Krishna Roy & Amaresh Dubey, 2023. "Does Higher Labour Market Flexibility Discourage R&D? Firm-Level Evidence from India’s Organised Manufacturing," The Indian Journal of Labour Economics, Springer;The Indian Society of Labour Economics (ISLE), vol. 66(4), pages 1119-1130, December.
    • Handle: RePEc:spr:ijlaec:v:66:y:2023:i:4:d:10.1007_s41027-024-00472-x
    DOI: 10.1007/s41027-024-00472-x
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    More about this item

    Keywords

    Labour market flexibility; R&D; Cragg’s double-hurdle model; Organised manufacturing; Labour policy;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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