Abstract
This paper provides large scale evidence on the determinants of international competitiveness of Indian manufacturing firms, focusing in particular on the role of technology, costs and imported intermediate inputs. Our evidence suggests that innovation, in particular R&D investment, is positively related to both firms’ probability to export and firms’ export volumes. We also find that imported intermediate inputs, incorporating foreign technology is strongly associated with expanding export activities of firms. Finally, and in contrast to much of previous evidence on developed economies, we find that higher productivity or lower unit labour costs are not systematically associated with the probability to enter export markets, but they are positively related to higher export volumes. Overall our results point to the existence of a pattern of involvement in international trade for firms in developing countries that is not relying as a main driver on cost competitiveness.
Highlights
A rich stream of literature, mostly focused on developed countries, and including, among others, Soete (1981, 1987), Wakelin (1998), Cimoli et al (2009), Bustos (2011), and Dosi et al (2015), has highlighted the distinct role of technology and cost-related variables in determining export performance at the country, countrysector and, at the firm-level
There is some evidence that cost-variables, as proxied by unit labour costs, do matter for export performance of developing countries; and the same is true for the role of technology
Our findings suggest that the use of imported inputs by firms is strongly associated with the export performance, both in increasing export values, and the
Summary
A rich stream of literature, mostly focused on developed countries, and including, among others, Soete (1981, 1987), Wakelin (1998), Cimoli et al (2009), Bustos (2011), and Dosi et al (2015), has highlighted the distinct role of technology and cost-related variables in determining export performance at the country, countrysector and, at the firm-level. This is even more true for developing countries, where a lower labour cost is often regarded as one of the main determinants of export participation and much less attention is generally paid to the role of innovation In such a context, we will resort to comprehensive firm-level data for India to shed light on this issue. India’s growth in manufacturing and in exporting has been slower than that of other developing countries, notably China (Rajan et al 2002) In this respect our results find that the import of inputs is related to the export performance of firms, suggesting a positive and significant role of imported foreign technology in the process of firm’s internationalization.
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