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The paper uses firm level panel data for Indian industries in the post-reform period to study the direct and indirect productivity effects generated by foreign investment. It finds no evidence that foreign investment directly increased firm-level productivity, nor that R&D spending was more productive in firms or sectors with higher foreign investment. It however finds strong evidence that local firms benefited from foreign investment in their industries. These benefits are higher for larger firms and those that do more business domestically.

This note illustrates a recent empirical phenomenon, which warrants a re-examination of the intangible asset theory of multinational enterprises (MNEs). It analyses two case studies of financial services: credit cards and insurance products in a developing economy. The case studies show that in the case of joint ventures between local firms, and MNEs in a developing economy, it is a large local bank that provides the brand name while MNEs provide the back-end (tangible) technical-support. The analysis also brings forth fresh insights on the issue of joint ventures, especially in the context of financial services in an emerging economy.

The paper uses panel data for Indian industries in the post-reform period to study the direct and indirect productivity effects at firm level generated by foreign investment. It finds no evidence that foreign investment directly increases firm-level productivity, nor that R&D spending is more productive in firms or sectors with higher foreign investment. It however finds strong evidence that local firms benefit from foreign investment in their industries. These benefits are higher for larger firms and those that do more business domestically.

In the literature on corporate governance, large outside investors are generally observed to reduce agency costs of corporate governance by monitoring and disciplining managers. This paper separates large investors into foreign investors and government owned local financial institutions and argues that the later have higher degree of moral hazard. The empirical results of the paper, based on firm level panel data for 11 Indian industries, show that foreign investors contribute positively to corporate performance in terms of profitability while the government financial institutions contribute negatively. Reducing the role of government financial institutions and opening up of the equity markets to foreign investors under effective regulatory mechanisms should improve corporate governance in terms of increasing transparency in developing economies. This, in turn, contributes positively to economic growth.

One of the important strategic decisions of TNCs in entering emerging markets is product differentiation in relation to growth in incomes and type of competition expected from local firms. This paper develops a simple theory in the context of the Indian economy that has opened up recently to competition. Being protected from potential competition in the pre-reform era, local incumbents do not have the usual incumbency advantages. Saddled with sunk costs in sub-international product lines, they cannot price-compete if new entrant TNCs position their product qualities sufficiently high. This and the fact that income growth swells the income of the middle classes are used to generate two hypotheses: 1. New entrant TNCs enjoy higher income elasticity for their products. 2. They face price elasticity similar to locals' unless there are too many TNCs competing in the same generic market. The hypotheses are tested on the basis of firm level panel data for five consumer durable goods industries.

The recent developments in the new growth theory shows the theoretical link between industrial productivity and market mechanism in terms of private agents’ incentives for investing in research and development and human capital accumulation. Several developing economies, such as India, that had implemented policy reforms towards market mechanism have been experiencing high economic growth. This paper brings out the factors that determine micro level firm level productivity in the context of a developing economy that had undertaken the policy reforms towards a freer market. It econometrically tests a few hypotheses on the basis of firm level panel data for a set of Indian industries. One of the strong results of the paper is that firm level outward orientation of exports and imports contributes significantly and positively to firm level productivity. This finding supports one of the propositions of the new growth theory that developing economies benefit significantly with free trade with developed economies through free flow of new ideas and technologies and externalities.

Until recently major part of FDI flows had been among developed economies with similar relative factor endowments, income levels and market institutions such as property rights regimes. Consequently, major theoretical streams of FDI in economics could simplify FDI as a substitute for intra-industry trade by incorporating transportation costs and economies of scale (multi-plants). In the recent years, developing economies have increased their share of FDI inflows significantly (40%). Explanation of magnitude and pattern of FDI into developing economies requires a complex ray of factors. This is because these economies differ significantly from developed economies and also among each other in economic development levels and endowment of market institutions. This paper attempts to develop a conceptual framework to explain pattern of FDI in developing economies by identifying the determinants on the supply and demand side and market institutional conditions. Differences in the endowment of the factors in a set determine the pattern of FDI in these economies. This paper illustrates this by taking the case study of China and India.

We examine the most likely strategy of product differentiation by newly entering multinational firms when market reforms begin in a developing economy. We argue that incumbents in a non contestable protected market do not have the usual advantages of an incumbent as in a standard sequential entry model of contestable markets. In this context we use a model of vertical product differentiation to argue that a new entrant will choose a higher quality product and a higher price given the income distribution profile brought in by the market reforms. We test the propositions empirically on the basis of firm level panel data for five Indian durable consumer goods industries.

This paper addresses the issue of how do domestic incumbent oligopoly firms, which functioned under the institutional conditions of protected markets and pervasive government intervention for a long period adjust to a relatively sudden change in market institutional conditions caused by market reforms in the Indian context. It focuses especially on the issue of response mechanism of local firms to competition from new entrant multinational companies (MNCs) and possible strategies of MNCs in penetrating the Indian market. It develops a conceptual framework by incorporating institutional elements into a simple sequential entry oligopoly model. This yields interesting insights into qualitative behaviour of firms in the post-reforms period. A few hypotheses drawn from the conceptual discussion are empirically tested on the basis of firm level panel data drawn from a set of Indian industries.