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The Impact of R&D and Foreign Direct Investment on Firm Growth in Emerging-Developing Countries : Evidence from Indian Manufacturing Industries

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  • Adamos Adamou

    (MSE)

  • Subash S

Abstract

This paper examines the impact of R&D and FDI on firm growth for a panel data of Indian manufacturing firms. We argue that besides age and size, FDI and R&D are essential determinants of firm growth. We use GMM estimation for fixed effects panel data models to control for endogenity of R&D and FDI. We find that an increase in current R&D induces higher growth across all industries; where as the effect of increase in FDI is mixed - higher growth in some industries and lower growth in some others. Furthermore, Gibrats law is not only rejected by our main model but it is also rejected by a unit root test for unbalanced panel datasets. This provides strong evidence in favor of our model. Finally, firm growth is negatively associated with its size and it is convex with respect to its age. The fact that firm growth is not diminishing convex but just convex with respect to age, contradicts the Jovanovics argument that younger firms tend to grow faster than their older counterparts. With respect to firm growth, the absence of learning-effects appears to be the main difference between emerging-developing and developed countries.

Suggested Citation

  • Adamos Adamou & Subash S, 2008. "The Impact of R&D and Foreign Direct Investment on Firm Growth in Emerging-Developing Countries : Evidence from Indian Manufacturing Industries," Development Economics Working Papers 22492, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:develo:22492
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    Cited by:

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    2. Krishan SINGH & Sandeep Kaur BHATIA, 2017. "Whether Fdi Or Exports Enhance Innovation: Evidence From Indian Manufacturing Firms, 2001-2012," Revista Galega de Economía, University of Santiago de Compostela. Faculty of Economics and Business., vol. 26(3), pages 19-32.
    3. Canarella, Giorgio & Miller, Stephen M., 2018. "The determinants of growth in the U.S. information and communication technology (ICT) industry: A firm-level analysis," Economic Modelling, Elsevier, vol. 70(C), pages 259-271.
    4. Toth, Jozsef, 2015. "Value creation and capturing: the case of the Hungarian agri-food SMEs," 89th Annual Conference, April 13-15, 2015, Warwick University, Coventry, UK 204229, Agricultural Economics Society.
    5. József TÓTH, 2013. "Trust €“ Networking €“ Innovation," Proceedings of the INTERNATIONAL MANAGEMENT CONFERENCE, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 7(1), pages 510-519, November.
    6. Shishir Saxena, 2011. "Technology and spillovers: evidence from Indian manufacturing microdata," Applied Economics, Taylor & Francis Journals, vol. 43(10), pages 1271-1287.
    7. Antje Schimke, 2011. "Factors Affecting the Growth of Manufacturing Firms - Analysis of Growth Stages: A Case of German Firms," ERSA conference papers ersa10p1386, European Regional Science Association.
    8. Clemente Ruiz Durán, 2014. "Mexico: auto industry and patenting in a technological dependent economy," Chapters, in: Sanghoon Ahn & Bronwyn H. Hall & Keun Lee (ed.), Intellectual Property for Economic Development, chapter 10, pages 240-263, Edward Elgar Publishing.

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    More about this item

    Keywords

    R&D; foreign direct investment; panel data; firm growth;
    All these keywords.

    JEL classification:

    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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