Determinants of inter-industry variations in research and development efforts in Indian manufacturing sector: a dynamic Patel data analysis

Abstract

Several studies have explored the determinants of firms' innovative efforts, but a consensus on the conceptual underpinnings and empirical manifestations of these determinants is yet to emerge. This paper attempts to understand the role of several factors in determining inter-industry variations in research and development (R&D) efforts in Indian manufacturing sector. Using Arellano–Bond dynamic panel estimation technique and a panel data set of 34 manufacturing industries over the period from 2001–2002 to 2008–2009, the paper finds that firms in industries with greater R&D efforts in the past, larger participation of the multinational corporations (MNCs), higher capital intensity, and greater penetration in the international market through exports spend more on R&D. On the other hand, R&D efforts are less in industries with larger incidence of mergers and acquisitions (M&A) and greater competition from imports. The degree of sellers' concentration in a market, size of the market, product differentiation, purchase of technology, and the level and variations profitability do not make any significant difference in R&D intensity across industries. Our findings raise some important policy issues relating to encouraging entry of MNCs through Greenfield investments, restricting M&A, and promoting exports.