International trade and R&D investment: evidence from manufacturing firms in India

This paper examines the effect of international trade on firms' investment in R&D. As the theoretical literature on this is ambiguous and contingent on many industry-and firm-specific details, an empirical analysis assumes significance. The study shows that export, in general, encourages investment in innovation, while R&D promoting effect of capital goods and disembodied technology import is not widespread. The impact of import competition, the study shows, depends on domestic market structure. It promotes investment in R&D only when domestic market is highly concentrated otherwise it has negative effect. The paper, thus, brings out the conditional nature of impact of trade on investment in R&D. This result supports the recent developments in the growth literature on the relationship between product market competition and innovation.