Firm-specific determinants of R&D behaviour of foreign affiliates in India

Abstract

In the recent past, one can observe that multinationals from developed countries are increasingly investing in R&D in the host developing countries. Nevertheless, the majority of the R&D activities of these multinationals are still located in the developed countries. Hence, there is a need to understand the factors that lead to enhanced R&D behaviour of foreign affiliates in developing countries like India. The present study attempts to understand the firm-specific factors that determine the R&D behaviour of foreign affiliates in India. The data used for the analysis is secondary data extracted from Prowess database of Centre for Monitoring Indian Economy. Econometric analysis is carried out on a panel data consisting of foreign-affiliated firms in India for a period of five years from 2011 to 2015. The results of the random effects Tobit analysis indicate that the traditional firm-specific variables like size of the firm and age of the firm are statistically significant in determining R&D intensity even in the case of foreign affiliates. Further analysis carried out using Heckman two-step econometric specification reveals that other firm-specific factors like labour intensity and outsourcing intensity are also relevant in determining R&D activities of the foreign affiliates in India. © Springer Nature Singapore Pte Ltd. 2020.