Abstract:
This paper examines the local firms productivity spillover from
foreign direct investment (FDI) based on a cross-industry analysis of Indian
manufacturing. The results are based on dynamic panel models and indicate
that foreign presence itself raises the local firm’s labour productivity within an
industry. Nevertheless, the technology spillover is conditioned by the nature of
the trade policy regime. We find that after trade policy liberalisation in India,
industries which experienced a decline in the tariff cost exhibited stronger
growth in domestic firms’ labour productivity. A key policy implication is that
liberalising the tariff protection could maximise the gains from FDI-technology
spillover.
