Role of externalities in inducing technical change: A case study of the Indian machine tool industry

The role of externalities in generating and diffusing technical change has been highlighted prominently in the past few years. The externalities assum e added relevance if the technical change in the industry is itself fast. I n this article, a framework is developed to explain the role of externaliti es in inducing technical change in one such fast changing industry-the mach ine tool industry. The framework is then applied to an important segment of the Indian machine tool industry, the Computer Numerically Controlled (CNC ) lathe segment. The primary survey of firms shows that externalities in th e form of feedback from users, suppliers, presence as well as products of c ompetitors, participation in exhibitions/fairs, and workers' suggestions ar e some of the most important factors in inducing technical change in the se gment. (C) 1999 Elsevier Science Inc.