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FDI, technical efficiency and spillovers: Evidence from Indian automobile industry

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  • Abhisek Sur
  • Amarendu Nandy

Abstract

Most emerging market economies intend to attract foreign direct investment (FDI), expecting that efficiency spillovers from FDI positively influence the productivity of domestic firms. The Indian automobile industry has been a key beneficiary of FDI, ever since the economy opened up since the early 1990s. Employing a stochastic frontier analysis (SFA), this paper first compares the technical efficiency of foreign firms (FFs) vis-à-vis domestic firms (DFs) in the Indian automobile industry for the period 2001–2014. Second, the paper identifies the key determinants, which explain the differences in technical efficiency between FFs and DFs. Finally, the paper analyses the transmission of spillovers from FFs to DFs in terms of competition, demonstration, and information effects. The results reveal higher technical efficiency (TE) of foreign firms over the domestic firms; that younger firms, both domestic and foreign, were relatively more efficient; and domestic automobile firms did not benefit from exporting activities, mainly due to their inward-orientation. The analysis in this paper suggests that the spillover effects is prominent only through demonstration effect. The competition and information effects are not significant channels for transmission of spillovers from foreign to domestic firms in the Indian automobile industry.

Suggested Citation

  • Abhisek Sur & Amarendu Nandy, 2018. "FDI, technical efficiency and spillovers: Evidence from Indian automobile industry," Cogent Economics & Finance, Taylor & Francis Journals, vol. 6(1), pages 1460026-146, January.
    • Handle: RePEc:taf:oaefxx:v:6:y:2018:i:1:p:1460026
    DOI: 10.1080/23322039.2018.1460026
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    Cited by:

    1. Keilla Dayane Silva-Oliveira & Edson Keyso Miranda Kubo & Michael J. Morley & Rodrigo Médici Cândido, 2021. "Emerging Economy Inward and Outward Foreign Direct Investment: A Bibliometric and Thematic Content Analysis," Management International Review, Springer, vol. 61(5), pages 643-679, October.
    2. Anzolin, Guendalina & Andreoni, Antonio & Zanfei, Antonello, 2022. "What is driving robotisation in the automotive value chain? Empirical evidence on the role of FDIs and domestic capabilities in technology adoption," Technovation, Elsevier, vol. 115(C).

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