IDEAS home Printed from https://ideas.repec.org/a/spr/jknowl/v15y2024i3d10.1007_s13132-023-01477-5.html
   My bibliography  Save this article

Innovation Under the Threat of FDI: A Study of Indian Firms

Author

Listed:
  • Devleena Majumdar

    (St. Xavier’s University
    St. Xavier’s University)

  • Sweta Shaw

    (St. Xavier’s University)

Abstract

Innovation is widely accepted as primary driver of economic growth in most of the developed as well as developing parts of the world. Recently, countries are more planned to achieve innovation-based competitiveness as it directly impacts productivity and enhances the immune to any form of economic turbulence and crisis. Along with that, an inflow of FDI enhances the knowledge spillover process via more R &D and expected to induce innovation for the local firms at a faster rate. With this in mind, the paper explores the impact of FDI on innovative performance of two giant Indian industries namely textile and chemical. Using a panel data technique for 9584 firms over a span of 15 years, the paper found a negative impact of inflow of FDI on innovation. Such findings further suggest that foreign entrants do not rely in Indian associates for innovation rather they rely on their country of origin or parent firm for the same. Our findings further indicate that inflow of FDI may not be the best source of knowledge spillover for Indian firms.

Suggested Citation

  • Devleena Majumdar & Sweta Shaw, 2024. "Innovation Under the Threat of FDI: A Study of Indian Firms," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(3), pages 10003-10021, September.
    • Handle: RePEc:spr:jknowl:v:15:y:2024:i:3:d:10.1007_s13132-023-01477-5
    DOI: 10.1007/s13132-023-01477-5
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s13132-023-01477-5
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s13132-023-01477-5?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Kogut, Bruce & Chang, Sea Jin, 1991. "Technological Capabilities and Japanese Foreign Direct Investment in the United States," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 401-413, August.
    2. Brian J. Aitken & Ann E. Harrison, 2022. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," World Scientific Book Chapters, in: Globalization, Firms, and Workers, chapter 6, pages 139-152, World Scientific Publishing Co. Pte. Ltd..
    3. Wolfgang Keller & Stephen R. Yeaple, 2009. "Multinational Enterprises, International Trade, and Productivity Growth: Firm-Level Evidence from the United States," The Review of Economics and Statistics, MIT Press, vol. 91(4), pages 821-831, November.
    4. Vahid Omidi & Abolfazl Shahabadi & Nader Mehregan, 2020. "Innovation Drivers in Developing Countries," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 11(2), pages 707-720, June.
    5. Morck, Randall & Yeung, Bernard, 1991. "Why Investors Value Multinationality," The Journal of Business, University of Chicago Press, vol. 64(2), pages 165-187, April.
    6. Keunjae Lee & Sang-Mok Kang, 2007. "Innovation Types and Productivity Growth: Evidence from Korean Manufacturing Firms," Global Economic Review, Taylor & Francis Journals, vol. 36(4), pages 343-359.
    7. Michael Hobday, 1995. "Innovation In East Asia," Books, Edward Elgar Publishing, number 226.
    8. Basant, Rakesh & Fikkert, Brian, 1996. "The Effects of R&D, Foreign Technology Purchase, and Domestic and International Spillovers on Productivity in Indian Firms," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 187-199, May.
    9. Byungchae Jin & Francisco García & Robert Salomon, 2019. "Inward foreign direct investment and local firm innovation: The moderating role of technological capabilities," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(5), pages 847-855, July.
    10. Stiebale, Joel & Reize, Frank, 2011. "The impact of FDI through mergers and acquisitions on innovation in target firms," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 155-167, March.
    11. Blalock, Garrick & Gertler, Paul J., 2008. "Welfare gains from Foreign Direct Investment through technology transfer to local suppliers," Journal of International Economics, Elsevier, vol. 74(2), pages 402-421, March.
    12. Anh Ngoc Mai & Huong Van Vu & Bien Xuan Bui & Tuyen Quang Tran, 2019. "The lasting effects of innovation on firm profitability: panel evidence from a transitional economy," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 32(1), pages 3417-3436, January.
    13. Wilbur Chung, 2001. "Identifying Technology Transfer in Foreign Direct Investment: Influence of Industry Conditions and Investing Firm Motives," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 32(2), pages 211-229, June.
    14. AM.Priyangani Adikari & Haiyun Liu & MMSA. Marasinghe, 2021. "Inward Foreign Direct Investment-Induced Technological Innovation in Sri Lanka? Empirical Evidence Using ARDL Approach," Sustainability, MDPI, vol. 13(13), pages 1-16, June.
    15. Barry, Frank & Bradley, John, 1997. "FDI and Trade: The Irish Host-Country Experience," Economic Journal, Royal Economic Society, vol. 107(445), pages 1798-1811, November.
    16. Sourafel Girma, 2005. "Absorptive Capacity and Productivity Spillovers from FDI: A Threshold Regression Analysis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 67(3), pages 281-306, June.
    17. García, Francisco & Jin, Byungchae & Salomon, Robert, 2013. "Does inward foreign direct investment improve the innovative performance of local firms?," Research Policy, Elsevier, vol. 42(1), pages 231-244.
    18. Ramya Ravi & Manthan D. Janodia, 2022. "University-Industry Technology Transfer in India: a Plausible Model Based on Success Stories from the USA, Japan, and Israel," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 13(2), pages 1692-1713, June.
    19. Gunday, Gurhan & Ulusoy, Gunduz & Kilic, Kemal & Alpkan, Lutfihak, 2011. "Effects of innovation types on firm performance," International Journal of Production Economics, Elsevier, vol. 133(2), pages 662-676, October.
    20. Qayoom Khachoo & Ruchi Sharma, 2016. "FDI and Innovation: An Investigation into Intra- and Inter-industry Effects," Global Economic Review, Taylor & Francis Journals, vol. 45(4), pages 311-330, October.
    21. Jonathan E. Haskel & Sonia C. Pereira & Matthew J. Slaughter, 2007. "Does Inward Foreign Direct Investment Boost the Productivity of Domestic Firms?," The Review of Economics and Statistics, MIT Press, vol. 89(3), pages 482-496, August.
    22. Aviral Kumar Tiwari & Mihai Mutascu, 2011. "Economic Growth and FDI in Asia: A Panel-Data Approach," Economic Analysis and Policy, Elsevier, vol. 41(2), pages 173-187, September.
    23. Tang, Yingkai & Zhang, Kevin H., 2016. "Absorptive capacity and benefits from FDI: Evidence from Chinese manufactured exports," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 423-429.
    24. Gene M. Grossman & Elhanan Helpman, 1994. "Endogenous Innovation in the Theory of Growth," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 23-44, Winter.
    25. Wilbur Chung & W Mitchell & B Yeung, 2003. "Foreign direct investment and host country productivity: the American automotive component industry in the 1980s," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 34(2), pages 199-218, March.
    26. Vinish Kathuria, 2002. "Liberalisation, FDI, and productivity spillovers--an analysis of Indian manufacturing firms," Oxford Economic Papers, Oxford University Press, vol. 54(4), pages 688-718, October.
    27. Joshua Abor & Simon Harvey, 2008. "Foreign direct investment and employment: host country experience," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 1(2), pages 213-225.
    28. Jamel Chouaibi, 2021. "Innovation and Financial Performance in Manufacturing Companies: an Empirical Study Tunisian," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 12(4), pages 1870-1890, December.
    29. Robert M. Salomon & J. Myles Shaver, 2005. "Learning by Exporting: New Insights from Examining Firm Innovation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(2), pages 431-460, June.
    30. X Martin & R Salomon, 2003. "Knowledge transfer capacity and its implications for the theory of the multinational corporation," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 34(4), pages 356-373, July.
    31. Franco, Chiara & Sasidharan, Subash, 2010. "MNEs, technological efforts and channels of export spillover: An analysis of Indian manufacturing industries," Economic Systems, Elsevier, vol. 34(3), pages 270-288, September.
    32. Chakraborty, Chandana & Nunnenkamp, Peter, 2008. "Economic Reforms, FDI, and Economic Growth in India: A Sector Level Analysis," World Development, Elsevier, vol. 36(7), pages 1192-1212, July.
    33. Haddad, Mona & Harrison, Ann, 1993. "Are there positive spillovers from direct foreign investment? : Evidence from panel data for Morocco," Journal of Development Economics, Elsevier, vol. 42(1), pages 51-74, October.
    34. Hasan, Rana, 2002. "The impact of imported and domestic technologies on the productivity of firms: panel data evidence from Indian manufacturing firms," Journal of Development Economics, Elsevier, vol. 69(1), pages 23-49, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. García, Francisco & Jin, Byungchae & Salomon, Robert, 2013. "Does inward foreign direct investment improve the innovative performance of local firms?," Research Policy, Elsevier, vol. 42(1), pages 231-244.
    2. AM.Priyangani Adikari & Haiyun Liu & MMSA. Marasinghe, 2021. "Inward Foreign Direct Investment-Induced Technological Innovation in Sri Lanka? Empirical Evidence Using ARDL Approach," Sustainability, MDPI, vol. 13(13), pages 1-16, June.
    3. Neil Foster-McGregor, 2012. "Innovation and Technology Transfer across Countries," wiiw Research Reports 380, The Vienna Institute for International Economic Studies, wiiw.
    4. Yoshimichi Murakami & Keijiro Otsuka, 2017. "A Review of the Literature on Productivity Impacts of Global Value Chains and Foreign Direct Investment: Towards an Integrated Approach," Discussion Paper Series DP2017-19, Research Institute for Economics & Business Administration, Kobe University, revised Aug 2019.
    5. Hamida, Lamia Ben, 2013. "Are there regional spillovers from FDI in the Swiss manufacturing industry?," International Business Review, Elsevier, vol. 22(4), pages 754-769.
    6. Todo, Yasuyuki & Zhang, Weiying & Zhou, Li-An, 2009. "Knowledge spillovers from FDI in China: The role of educated labor in multinational enterprises," Journal of Asian Economics, Elsevier, vol. 20(6), pages 626-639, November.
    7. Lakatos, Csilla & Fukui, Tani, 2014. "The Liberalization of Retail Services in India," World Development, Elsevier, vol. 59(C), pages 327-340.
    8. Benzaim, Samia & Ftiti, Zied & Khedhaouria, Anis & Djermane, Rebai, 2023. "US foreign investments: Technology transfer, relative backwardness, and the productivity growth of host countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 87(C), pages 275-295.
    9. Haiwei Jiang & Yousha Liang & Shiyuan Pan, 2022. "Foreign direct investment and regional innovation: Evidence from China," The World Economy, Wiley Blackwell, vol. 45(6), pages 1876-1909, June.
    10. Doytch, Nadia & Uctum, Merih, 2019. "Spillovers from foreign direct investment in services: Evidence at sub-sectoral level for the Asia-Pacific," Journal of Asian Economics, Elsevier, vol. 60(C), pages 33-44.
    11. Penelope Pacheco-Lopez, 2014. "Contrasting the Perception and Response of Domestic Manufacturing Firms to FDI in Sub-Saharan Africa," Studies in Economics 1410, School of Economics, University of Kent.
    12. Chen, Yongmin & Jiang, Haiwei & Liang, Yousha & Pan, Shiyuan, 2022. "The impact of foreign direct investment on innovation: Evidence from patent filings and citations in China," Journal of Comparative Economics, Elsevier, vol. 50(4), pages 917-945.
    13. Apostolov Mico & Scagnelli Simone Domenico, 2019. "Foreign-Versus Domestic-Owned firms in the Predicament ‘Cui bono?’," Business Systems Research, Sciendo, vol. 10(2), pages 18-36, September.
    14. Nuno CRESPO & Isabel PROENÇA & Maria Paula FONTOURA, 2012. "The Spatial Dimension in FDI Spillovers: Evidence at the Regional Level from Portugal," Regional and Sectoral Economic Studies, Euro-American Association of Economic Development, vol. 12(1), pages 115-130.
    15. Ben Hamida, Lamia & Gugler, Philippe, 2009. "Are there demonstration-related spillovers from FDI?: Evidence from Switzerland," International Business Review, Elsevier, vol. 18(5), pages 494-508, October.
    16. Seenaiah Kale & Badri Narayan Rath, 2018. "Does Innovation Enhance Productivity In Case Of Selected Indian Manufacturing Firms?," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 64(05), pages 1225-1250, November.
    17. Gorodnichenko, Yuriy & Svejnar, Jan & Terrell, Katherine, 2014. "When does FDI have positive spillovers? Evidence from 17 transition market economies," Journal of Comparative Economics, Elsevier, vol. 42(4), pages 954-969.
    18. Tomáš Havránek & Zuzana Iršová, 2010. "Meta-Analysis of Intra-Industry FDI Spillovers: Updated Evidence," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 60(2), pages 151-174, May.
    19. Clark Don P. & Highfill Jannett & de Oliveira Campino Jonas & Rehman Scheherazade S., 2011. "FDI, Technology Spillovers, Growth, and Income Inequality: A Selective Survey," Global Economy Journal, De Gruyter, vol. 11(2), pages 1-44, July.
    20. Song, Young Chul & Son, Sung Hyun, 2020. "Identifying the impact of geographical proximity on spillover effect of FDI: The evidence from Indian local firms’ performance gains," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:jknowl:v:15:y:2024:i:3:d:10.1007_s13132-023-01477-5. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.