Liberalization, Outward Orientation and R&D Behaviour of Local Firms and MNE Affiliates: A Quantitative Exploration

Aradhna Aggarwal, Nagesh Kumar

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Abstract

In an increasingly globalizing and knowledge-based world economy, the declining importance of R&D activity in India is a matter of concern. This paper analyzes the determinants of R&D behaviour of Indian enterprises over the 1990s in the context of the reforms of 1991 and their impact on the R&D behaviour of MNE affiliates and local enterprises. The analysis suggests that although average levels of spending have fallen, increased competition due to liberalization seems to have pushed local firms to rationalize their R&D activity and make it more efficient. Also, R&D spending seems to rise more than proportionally with firm size after a certain threshold level has been reached. The analysis brings out differences in the nature of R&D activity of MNE affiliates and local firms. Local firms direct their R&D activity primarily towards the assimilation of imported technology, and to providing a backup to their outward expansion via exports and FDI. MNE affiliates, on the other hand, focus on exploiting the advantages of India as an R&D platform for their parents. The paper is concluded with some policy implications of the findings.
Original languageDanish
Title of host publicationIndia, Industrialisation in a Reforming Economy : Essays for K L Krishna
EditorsSuresh D. Tendulkar, Arup Mitra, K. Narayanan, Deb Kusum Das
Place of PublicationNew Delhi
PublisherAcademic Foundation
Publication date2006
Pages409-438
Chapter17
ISBN (Print)8171884881
Publication statusPublished - 2006
Externally publishedYes

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