Technology Transfer And Productivity Growth- Evidence From Indian Manufacturing Industries

Abstract

Acquisition of technology and its diffusion foster productivity growth. Developing countries across the world have relied largely on technology import from developed countries for driving their technological changes. India too has been no exception. Against this backdrop, the present paper assesses the role of technology transfer in promoting productivity growth in Indian manufacturing industries. Foreign technology may be imported into a country via three channels, namely, trade channel, investment channel and license channel. India witnessed manifold increase in the importance of these channels of technology transfer since its economic liberalization in the early nineties. Using industry level secondary data on- productivity, import of capital and intermediate goods, FDI and Royalty and license fee, the present paper works out two econometric models. Model 1 evaluates changes in productivity levels within the industry importing the technology while model 2 examines changes in productivity levels of the industries upstream of the technology importing sectors. Results from two-way panel estimations show that import of technology via import of capital and other intermediate goods did lead to productivity growth in the technology importing sectors. However, this downstream import of capital goods and intermediate goods failed to penetrate and impact the productivity of the upstream input supplying sectors. Neither did downstream FDI result in improving the productivity of the upstream sectors. Thus, productivity growth that has happened in India due to technology import are those within the raw materials and capital goods importing sectors and via the trade channel of technology transfer. But unfortunately, no import penetration that positively impacts productivity has happened among domestic firms that supply inputs to either the input importing downstream sectors or the foreign invested downstream sectors. With India’s renewed focus on increasing output share and productivity of manufacturing sector, such nonpenetration of technology imports is definitely not good news. Usage of foreign technology to increase productivity may be a short run solution to attaining better productivity, but one has to learn from this imported knowledge and it should result in penetration and learning across industries so that the growth in productivity may be sustained over the long run.