FDI spillovers, innovation and the role of industrial clusters: evidence from innovative Indian manufacturing firms
FDI spillovers, innovation and the role of industrial clusters: evidence from innovative Indian manufacturing firms
This paper studies the impacts of horizontal and vertical foreign direct investment (FDI) spillovers on innovation activities of Indian manufacturing firms by comparing effects within major industrial clusters with those outside. We find that a great breadth of innovations arises via horizontal linkages among firms within the industrial clusters. Conversely, firms outside industrial clusters do not portend measurable innovation effects from FDI spillovers. Our results highlight the crucial role of geographical proximity in harnessing innovation spillovers, further emphasizing the need for tailored policies for firms outside major industrial clusters to maximize their innovation potential. A Difference-in-Differences estimation to gauge the effect of the 2014 FDI liberalization policy on firms’ innovation output shows that foreign firms have significantly increased their innovation activities relative to domestic firms post-2014 FDI liberalization policy.
FDI, Horizontal spillover, Industrial cluster, Innovation, Vertical spillover
Chetia, Pompi
c227dd78-f5b8-4de5-92d1-276a9bfbd9a8
Behera, Smruti Ranjan
a34cd079-b16b-41ea-b64d-adc36c754f5e
Mishra, Tapas
218ef618-6b3e-471b-a686-15460da145e0
Parhi, Mamta
ce77cfb1-ee94-4c59-8166-654632812281
30 July 2025
Chetia, Pompi
c227dd78-f5b8-4de5-92d1-276a9bfbd9a8
Behera, Smruti Ranjan
a34cd079-b16b-41ea-b64d-adc36c754f5e
Mishra, Tapas
218ef618-6b3e-471b-a686-15460da145e0
Parhi, Mamta
ce77cfb1-ee94-4c59-8166-654632812281
Chetia, Pompi, Behera, Smruti Ranjan, Mishra, Tapas and Parhi, Mamta
(2025)
FDI spillovers, innovation and the role of industrial clusters: evidence from innovative Indian manufacturing firms.
Economic Modelling, 152, [107240].
(doi:10.1016/j.econmod.2025.107240).
Abstract
This paper studies the impacts of horizontal and vertical foreign direct investment (FDI) spillovers on innovation activities of Indian manufacturing firms by comparing effects within major industrial clusters with those outside. We find that a great breadth of innovations arises via horizontal linkages among firms within the industrial clusters. Conversely, firms outside industrial clusters do not portend measurable innovation effects from FDI spillovers. Our results highlight the crucial role of geographical proximity in harnessing innovation spillovers, further emphasizing the need for tailored policies for firms outside major industrial clusters to maximize their innovation potential. A Difference-in-Differences estimation to gauge the effect of the 2014 FDI liberalization policy on firms’ innovation output shows that foreign firms have significantly increased their innovation activities relative to domestic firms post-2014 FDI liberalization policy.
Text
Rev. M_ECMODE-D-01053_PC_SRB_R4_TM
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Accepted/In Press date: 19 July 2025
e-pub ahead of print date: 23 July 2025
Published date: 30 July 2025
Keywords:
FDI, Horizontal spillover, Industrial cluster, Innovation, Vertical spillover
Identifiers
Local EPrints ID: 504655
URI: http://eprints.soton.ac.uk/id/eprint/504655
ISSN: 0264-9993
PURE UUID: 130eea29-75fa-403d-b7f8-893d2f663258
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Date deposited: 16 Sep 2025 17:15
Last modified: 18 Sep 2025 01:47
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Contributors
Author:
Pompi Chetia
Author:
Smruti Ranjan Behera
Author:
Mamta Parhi
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