Foreign firms, technology transfer and knowledge spillovers to Indian manufacturing firms: a stochastic frontier analysis

This paper uses techniques from a stochastic production frontier (i.e., the best practice technology used in the industry vis-a-vis average practised technology) and panel data literature to test for the spillover hypothesis that 'presence of foreign-owned firms and disembodied technology import in a sector leads to higher productivity growth for domestic firms'. The study uses panel data for 368 medium and large-sized Indian manufacturing firms for the period 1975-1976 to 1988-1989. The results indicate that there exis ts positive spillovers from the presence of foreign-owned firms but the nat ure and type of spillovers vary depending upon the industries to which the firms' belong. There exist significant positive spillovers for the domestic firms belonging to the 'scientific' subgroup provided the firms themselves possess significant R&D capabilities. However, for the 'non-scientific' su bgroup presence of foreign firms itself forces the local firms to be more p roductive by inducing greater competition. However, the results change marg inally when the initial level of productivity (i.e. the technology-gap) is considered.