Imported intermediary inputs, R&D and Firm's Productivity: Evidence from Indian Manufacturing

This paper examines dynamic as well as static effects of imported intermediary inputs and inhouse R&D on productivity growth using firm-level panel data for Indian technology-intensive manufacturing industries for the period 2000-2009. For this purpose, the present study adopts two empirical frameworks: production function and growth accounting method. Although we do have some comprehensible evidence to conclude that imported inputs have positive and significant impact on the productivity of firms, but the overall findings are rather mixed. Specifically, the results from the production function framework suggest that impact of imported intermediary goods on output is reasonably sizable. Surprisingly, however, the role of R&D activities under this framework is found to be insignificant across industries in various estimation specifications. On the other hand, the analysis based on the growth accounting model some yields positive results, which suggest that TFP of firms are closely linked with import and R&D activities. Firms that engage in these activities have 8% to 12% higher TFP than other firms across the industries. However, labor productivity is found to be insulated from these activities.