The Impact of R&D and FDI on Firm Growth in Emerging-Developing Countries: Evidence from Indian Manufacturing Industries

28 Pages Posted: 17 May 2007

See all articles by Adamos Adamou

Adamos Adamou

University of Cyprus - Department of Economics

Subash Sasidharan

Indian Institute of Technology, Bombay

Date Written: April 2007

Abstract

This paper examines the impact of R&D and FDI on firm growth for a panel data of Indian manufacturing firms. We argue that besides age and size, FDI and R&D are essential determinants of firm growth. We use GMM estimation for fixed effects panel data models to control for endogenity of R&D and FDI. We find that an increase in current R&D induces higher growth across all industries; where as the effect of increase in FDI is mixed - higher growth in some industries and lower growth in some others. Furthermore, Gibrat's law is not only rejected by our main model but it is also rejected by a unit root test for unbalanced panel datasets. This provides strong evidence in favor of our model. Finally, firm growth is negatively associated with its size and it is convex with respect to its age. The fact that firm growth is not diminishing convex - but just convex - with respect to age, contradicts the Jovanovic's argument that younger firms tend to grow faster than their older counterparts. With respect to firm growth, the absence of learning-effects appears to be the main difference between emerging-developing and developed countries.

Keywords: R&D, FDI, panel data, firm growth

JEL Classification: D00, L60

Suggested Citation

Adamou, Adamos and Sasidharan, Subash, The Impact of R&D and FDI on Firm Growth in Emerging-Developing Countries: Evidence from Indian Manufacturing Industries (April 2007). Available at SSRN: https://ssrn.com/abstract=987024 or http://dx.doi.org/10.2139/ssrn.987024

Adamos Adamou (Contact Author)

University of Cyprus - Department of Economics ( email )

75 Kallipoleos Street
P.O. Box 20537
Nicosia, 1678
Cyprus

HOME PAGE: http://ucy.ac.cy/dir/el/component/comprofiler/userprofile/adamos

Subash Sasidharan

Indian Institute of Technology, Bombay ( email )

Department of Humanities and Social Sciences
Indian Institute of Technology,Bombay, Powai
Mumbai, Mumbai 400 076 400076
India

HOME PAGE: http://www.hss.iitb.ac.in/RS/Subash/subashs.htm

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