Technology Acquisition and Growth of Firms Under Changing Policy Regimes: A Study of the Indian Automobile Sector

This paper attempts to analyse the determinants of growth of Indian automobile firms during three different policy regimes, namely licensing (1980-81 to 84-85), de-regulation (1985-86 to 1990-91) and liberalisation (1991-92 to 1995-96). The analysis broadly follows the evolutionary theoretical framework. It is argued that differences among firms in terms of technology acquisition explain much of the firm level variation in growth. To incorporate firm specific and inter-temporal changes, the study used two-way fixed effects estimation of the growth function. The results of this exercise support the view that inter-firm differences in growth in this industry in India are determined by variables capturing technology paradigm and trajectory shifts. The changing role of technology acquisition variables in determining growth is also borne out by the results of this exercise, thereby broadly confirming the basic tenets of Penrose (1959), Marris (1964), Geroski (1995) and the evolutionary theorists. Further, if one accounts for the role of technology, vertical integration, capital intensity and the age of the firm, size of the firm does provide a firm with positive advantages to grow. The results of this paper also confirm the hypothesis of the Marris model that profitability determines a firm's ability and willingness to grow and point out that, while vertical integration poses severe constraints in maximising growth, firms that are efficient in utilising their capital stock and the new ones grow at a faster rate than their older counterparts.