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Publication date: 1 July 2024

Pompi Chetia and Smruti Ranjan Behera

This paper aims to explore whether firms’ performance determines innovation using a sample of Indian manufacturing firms. The impact of innovation on firms’ performance across…

175

Abstract

Purpose

This paper aims to explore whether firms’ performance determines innovation using a sample of Indian manufacturing firms. The impact of innovation on firms’ performance across specific countries has been discussed in the literature. However, the effect of firms’ performance on innovation output, especially for a developing country like India, remains an open question. Against this backdrop, this paper investigates whether firms’ performance determines innovation in Indian manufacturing firms.

Design/methodology/approach

The authors use patent filing information to instrument innovation and total factor productivity to instrument firms’ performance. The patent data are collected from the Patent Search and Analysis Software database and firm-level data from the Centre for Monitoring Indian Economy’s Prowess database. The study uses a sample of 309 Indian manufacturing firms from 2005 to 2021. Given the count nature of the data set used in this study coupled with over-dispersion issues, the authors have used the negative binomial regression to estimate the empirical specification of the models. There could be a possible problem of endogeneity due to the contemporary nature of innovation and firms’ performance. Therefore, to address the possible issues of endogeneity in the model, the authors have used the Generalized Method of Moments (GMM) estimators for more robustness checks of the empirical results.

Findings

The empirical results exhibit a positive and significant impact of firms’ performance on the innovation output, validating that firms’ performance determines innovation in Indian manufacturing firms. The posterior estimation results using GMM estimation also corroborate that firms’ productivity is a determining factor for the innovation output of Indian manufacturing firms. Furthermore, empirical results exhibit that the ex ante innovativeness of the firms substantially affects the current innovation. This validates that the firms’ prior experience, learning by doing and past innovative efforts are more likely to precipitate more innovation in the current period.

Originality/value

This paper’s main contribution is empirically estimating whether firms’ performance determines innovation, which is hardly discussed in the existing innovation literature, specifically using Indian manufacturing industries. Further, it adds to the existing literature in two other prominent ways. First, this paper investigates whether firms require ex ante expertise to innovate or if a firm starting from scratch can innovate significantly without any hindrances. Second, it enriches the literature by instrumenting innovation in output terms with the patent application against input measures of innovation, such as research and development expenditures, acquisition of machinery and equipment, while discussing the relationship between firms’ performance and innovation, specifically in the context of a developing economy like India.

Details

Indian Growth and Development Review, vol. 17 no. 2
Type: Research Article
ISSN: 1753-8254

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Article
Publication date: 14 June 2019

Bishwanath Goldar, Isha Chawla and Smruti Ranjan Behera

The purpose of this paper is to assess the impact of India’s trade liberalization during the late 1990s and 2000s on productivity of manufacturing firms and verify whether the…

510

Abstract

Purpose

The purpose of this paper is to assess the impact of India’s trade liberalization during the late 1990s and 2000s on productivity of manufacturing firms and verify whether the productivity-enhancing impact of reductions in input tariffs was greater than that of output tariff cuts, as found in some earlier studies.

Design/methodology/approach

Firm-level (company-level) data drawn from Prowess database are used for the estimation of total factor productivity (TFP) at the firm level, done by using the Levinsohn–Petrin methodology. Econometric models are estimated to explain firm-level TFP. The explanatory variables used are output and input tariff rates and quantitative restrictions on imports at the industry level and firm characteristics such as firm size, export intensity and import intensity. Firm-level panel data for 2002-2010 or for a longer period 1998-2010 are used for the estimation of econometric models. Model estimation is done by applying the fixed-effects model and IV-2SLS, 3SLS estimators and EC2SLS estimators.

Findings

Trade liberalization had a significant positive effect on the productivity of Indian manufacturing firms. The lowering of output tariff had a greater beneficial impact on TFP of Indian manufacturing firms than the lowering of tariff on intermediate inputs.

Originality/value

Good deal of care has been taken in the measurement of output and inputs for the purpose of TFP measurement. Two alternative frameworks, gross output and value added, are used. This helps in making a better estimate of the impact of trade liberalization on TFP.

Details

Indian Growth and Development Review, vol. 13 no. 1
Type: Research Article
ISSN: 1753-8254

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