Foreign Direct Investment and Technology Spillover: Evidence across Indian Manufacturing Industries

The paper attempts to analyze the spillover effect of Foreign Direct Investment (FDI) across Indian manufacturing industries. Foreign presence by way of FDI brings new channels of technology spillover to the domestic industrial firms in the form of enhanced efficiency and diffusion of knowledge in the long-run. By carrying out Pedroni cointegration tests, the analysis tries to provide a long-run relationship between endogenous variables and explanatory variables, pertaining to technology spillovers across Indian manufacturing industries. We find that technology spillovers are relatively higher in industries like food products, textiles, chemicals, drugs and pharmaceuticals and non-metallic mineral products. We are thankful to K. L. Krishna and Arup Mitra for their valuable comments and insightful suggestions that have improved this paper considerably. We gratefully acknowledge the comments and feedback we have received from two anonymous referees of the journal which have enabled us to incorporate new ideas in this paper. An earlier version of the paper was presented at the conference on Empirical Issues in International Trade and Finance organized by the Indian Institute of Foreign Trade (IIFT), held on 23-24 December, 2008 at Kolkata. We are thankful to the participants for their valuable comments. we have benefited from the useful comments of the reviewer of this paper.