R&D spillover and productivity growth: Evidence from Indian private firms

We test the R&D spillover hypothesis of the endogenous growth literature using panel data for a sample of private manufacturing firms in India over the period 1975-1986. We estimate an extended production function that includes the firm's own R&D capital stock and the spillover effect of the industry-wide R&D capital stock as inputs, as well as physical capital and labor hours. We specify models which eliminate three sources of estimation bias and flawed hypothesis tests: serially correlated errors, unobserved heterogeneity due to omitted factors of production, and endogenous determination of value-added and input levels. Several specification tests are used to select a well-behaved model. The final parameter estimates show evidence for the R&D spillover hypothesis in all industries.