Institutional Differences, Foreign Ownership Modes, Marketing Capabilities and Domestic Technological Catch-up: Evidence from India

Abstract

This research examines FDI-mediated domestic firms’ technological catch-up by considering institutional differences between home and host countries, the role of marketing capabilities, and the joint effects of institutional differences and the degree of foreign ownership. Using firm-level panel data for Indian manufacturing industries, we find that FDI-mediated technological catch-up in domestic firms is conditional on institutional differences between the home and host country of multinational enterprises and the level of marketing capabilities of foreign-owned affiliates. In addition, we find that technological catch-up in domestic firms is likely to be positively influenced by the presence of wholly foreign-owned firms from institutionally close countries, whereas we find some evidence that the presence of minority foreign-owned firms may have a negative effect on domestic technological catch-up, regardless of institutional differences. We also provide theoretical and policy implications of our findings.