Assessing Productivity Dynamics in the Indian Pharmaceutical Industry: A Comparative Analysis of the Foreign and the Domestic Ownership Influences

Abstract

This study investigates the impact of competition (foreign vs. domestic) on the total factor productivity of domestic firms. We used two specific indicators to measure foreign and domestic competition in the Indian pharmaceutical industry: market shares and The Herfindahl-Hirschman Index, constructed for a five-digit NIC level, highlighting the intensity of product-level competition. The Levinsohn and Petrin methods calculate the total factor productivity, and dynamic panel data estimators are applied to estimate the model. The research findings indicate that foreign presence has a notable and statistically significant influence on the productivity levels of domestic firms. In contrast, the impact of domestic competition is found to be inconsequential. This research addresses the policy debate by providing convincing evidence that the existence of Multinational Enterprises (MNEs) can increase local business productivity through knowledge spillovers and competitiveness.