Liberalization, Firm Size and R&D Performance : A Firm Level Study of Indian Pharmaceutical Industry

In the present paper, it is attempted to empirically verify the impact of economic liberalization on the R&D behaviour of Indian pharmaceutical firms controlling for the effects of several firm specific characteristics including firm size. The results from the Tobit analysis for a sample of firms over the period 1989-90 to 2000-01 indicate that competitive pressure generated by liberalization has worked effectively in pushing Indian pharmaceutical firms into R&D activity. A host of firm characteristics like firm age, size, profitability, intangible assets, export orientation and outward foreign direct investment are also found to be important determinants of innovative activity in the industry. The study suggests several policy measures to further indigenous technological efforts of pharmaceutical firms, which include, removing obstacles that inhibit outward orientation of firms, providing special scheme for small size firms in the overall technology policy for the industry, intensifying collaborative research efforts between private sectors and government research institution, and utilizing flexibilities in the TRIMs agreements to persuade foreign firms to relocate their R&D units into the country