This paper analyzes the extent to which the presence of multinational firms helps in technological capability building in Indian manufacturing industries, by comparing the technological performance of around 1800 domestic and foreign-owned firms in various industry groups after the liberalization of the economy in 1991. The technological performance has been captured using four technological indicators, viz., R&D intensity, export intensity, capital goods import intensity, and technology licensing intensity. The results show that there has been a substantial growth in the R&D intensity and export intensity of domestic-owned manufacturing firms in India after the liberalization. However, while the export intensity showed a slight upward trend for the foreign firms, the R&D intensity was more or less stagnant. The study also finds that the dependence on technology imports, either through embodied or disembodied channel, is declining. The results indicate that the technological capability building by both domestic and foreign firms is more industry-specific.
Modern economic growth is mainly characterized by increasing stock of useful knowledge
and its extensive application. It is well acknowledged that technological progress, which
incorporates both changes in the structure of capital and advances in human skills, has
been the main cause of advances in the productivity and growth of several industrialized
economies (Dunning, 1970). The growing disparities among nations in their technological
capabilities, commonly referred to as ‘technology-gap’, demand for a continual process of
international transfer and diffusion of technology. Economic liberalization, with an open
and outward-oriented outlook, helps in speeding up this technology transfer and diffusion.
It is considered that when a country opens up its economy, it benefits from knowledge developed outside its borders. This knowledge transfer can be through trade in goods
and services, and/or through ‘arm’s-length transactions’1 of technology, and/or
through foreign investment. Since the Second World War, with countries increasingly
opening up their economies, technology transfer and international competitiveness
are receiving ever increasing attention in the trade literature as well as in
policymaking (Kumar and Siddharthan, 1994). In recent times, the most recognized
and accepted channel for the diffusion of technological knowledge is the Foreign
Direct Investment (FDI) through Multinational Enterprises (MNEs) that brings in
technology along with a host of other factors such as capital, management skills,
and worldwide marketing experience and expertise, among others.
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