Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/235550 
Year of Publication: 
2021
Series/Report no.: 
DICE Discussion Paper No. 363
Publisher: 
Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE), Düsseldorf
Abstract: 
This paper uses a rich panel data set of Indian manufacturing firms to analyze the effects of foreign direct investment (FDI) on various outcomes of domestic firms. We apply recent methodological advances in the estimation of production functions together with detailed product-level information on prices and quantities to estimate physical productivity, markups and marginal costs. Our results indicate the importance of price adjustments which stem from competitive pressure and a pass-through of cost savings to consumers. In line with the previous literature, we find little evidence for spillovers based on commonly used measures of revenue productivity. In contrast, we measure sizable efficiency gains using measures that are not affected by pricing heterogeneity, such as marginal costs and physical productivity. Exploiting exogenous variation from India's FDI liberalization, we provide evidence that the relationship between exposure to FDI and efficiency is causal. Our results suggest that knowledge spills over across product categories within industries and mainly benefits producers of high-quality products. We also provide evidence that FDI spillovers are stronger for joint ventures and when foreign investors enter via acquisitions.
Subjects: 
Foreign Direct Investment
Spillovers
Productivity
Marginal Costs
Prices
Markups
Multi-Product Firms
JEL: 
F61
F23
G34
L25
D22
D24
ISBN: 
978-3-86304-362-9
Document Type: 
Working Paper

Files in This Item:
File
Size
698.19 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.