ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Trade Reforms, Technology Import, and Firm Productivity in the Indian Manufacturing Sector

The paper is an attempt to examine the impact of technology import on the productivity of Indian manufacturing firms during 1995–2016. The empirics are based on an unbalanced sample of 4,616 firms, which is further segregated into four use-based categories of production. This analysis tends to support the predictions of new trade and growth theories that international trade provides opportunities for dynamic productivity gains.

The paper is a part of the sponsored project funded by ICSSR. The author duly acknowledges the financial support and assistance from the ICSSR. He thanks the anonymous referee and participants of the Globelics Conference 2021, 14th Annual Conference of Knowledge Forum and ISID seminar for their helpful comments and suggestions. However, any remaining errors are solely his responsibility.

The economic reforms in 1991 marked the beginning of a series of systematic and comprehensive policy changes in the industry and trade sectors. A major thrust of the policy reform was to enhance industrial productivity through better investment choices and technological upgradation. The successive reduction in trade barriers following liberalisation opened up significant opportunities for manufacturers to access global technology inputs through imports. As the distribution of technology is highly skewed and concentrated in a few advanced countries, trade can function as a medium of technology transfer from rich to poor countries by providing access to cheap and variety of factor inputs (Grossman and Helpman 1991; Zanello et al 2016).

The import of knowledge-intensive products, which are embodied in the research and development of advanced countries, facilitates domestic adaptation and assimilation of technology. This improves the efficiency of capital accumulation and productivity, leading to further dynamic benefits for the entire economy (Lee 1995). The import of technology inputs helps firms reduce their marginal cost of production, and offer better price-adjusted quality and product variety relative to autarky which enhances productivity (Halpern et al 2015). As production factor cost falls, firms will be able to devote a larger share of expenditure on upgrading technology and productivity. The combination of reduction in costs, availability of new vintage and higher quality inputs provide further dynamic learning effects in production (Bas 2012).

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Updated On : 24th Apr, 2023
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