Regional Heterogeneity and Firms’ Innovation: The Role of Regional Factors in Industrial R&D in India

Abstract

This study makes an early attempt to estimate the magnitude and intensity of manufacturing firms’ R&D by Indian states during the period 1991-2008 and analyses the role of regional factors on firm-level R&D activities. As there is little research on state-wise R&D performance of firms in India, this study serves an important contribution to the academic and policy realm. It has brought out the fact the total manufacturing R&D investment in India is unevenly distributed regionally with a few states accounting for disproportionate share of it. Regional heterogeneity or inter-state disparities in R&D has increased between the 1990s and the first decade of the twenty-first century. In view of this persistent regional heterogeneity in R&D, the study has developed and estimated an empirical model for a sample of 4545 Indian manufacturing firms with R&D facilities located in single state and that explicitly includes regional factors as probable factors affecting R&D. The three-step Censored Quantitle Regression results confirm that regional factors play an important role in shaping the R&D intensity of the sample of firms. This led us to some useful policy suggestions for regional governments to promote local firms’ R&D activities.

Keywords: Regional Heterogeneity, R&D, Manufacturing Firms, Indian States, Censored Quantitle Regression

JEL Classification: R11, O30, O32, L16, N65, C2