Does FDI Induce Knowledge Spillovers? Evidence from Indian Pharmaceutical Industry

Abstract

The study examines knowledge spillovers from multinational firms in the Indian pharmaceutical industry. Specifically, we examine whether FDI catalyses diffusion of knowledge transfer from multinational firms’ R&D activities during 2000-01 to 2019-20 and four sub-periods of five years each. The empirical evidence suggests that multinational firms do not have any impact on the output of domestic firms in the first two sub-periods. However, generate positive knowledge spillovers in the last two sub-periods, increasing the output of domestic firms. FDI flows in the pharmaceutical sector increased mainly in the last two sub-periods due to policy changes and more relaxed FDI norms. The study finds that competition effect exists and distinguishes domestic firms. Firms not investing in R&D face enhanced competition from firms investing in R&D activities.