Subash Sasidharan

The decision to undertake investment in innovative activities is an important strategic choice made by firms. This study investigates the relationship between business group (BG) affiliation and research & development (R&D) activities of Indian firms. Using an empirical approach that accounts for endogeneity and selection bias, we observe that BG affiliation has significant positive influence on the sample firms’ R&D activities. Employing various proxies for institutional development, we show that the effect of BG affiliation on R&D declines with the improvements in institutional and regulatory mechanisms. Further, this study explores the linkages between diversification strategies at the group level and R&D investments by firms affiliated with BGs. Results show that degree of related diversification is positively associated with the affiliates’ innovation efforts.

Sustainable Development Goal 6.1 is “to achieve universal and equitable access to safe and affordable drinking water for all”. To measure affordability of accessing clean water, coping cost approach has been adopted, and this paper contributes to the burgeoning empirical literature on measuring affordability. The objective of this paper is to estimate coping costs related to the erratic, unsafe, and inadequate water supply in the metropolitan area of Chennai, India. Based on the data collected from 423 households, we find that households in Chennai city resort to five main types of coping behaviors: collecting, pumping, treating, storing, and purchasing. We employ the multiple regression with robust errors, to estimate the determinants of the coping costs. We obtain the mean coping costs as INR (Indian Rupee) 553, and INR 658 per month for piped and non-piped households in this sample. For non-piped households, collection costs (time costs in traveling and queuing for collecting water) constitute 22% of the coping costs, while collection costs for piped households are less 2% of the coping costs. One interesting finding is the variation of coping costs with household income—these costs are roughly 1% of income for the high income households to as high as 15% for the low income households. The results outline the need of policy intervention to enhance affordability.

This paper investigates the relationship between the volatility of government bond yields and liquidity using daily data. We introduce a novel measure of liquidity called Repo Spread created from Reserve Bank of India's recent liquidity operation called Term Repo Operation. The result indicates that liquidity variable has significant explanatory power on the volatility of security yields. Further, we find Repo Spread has significant predictive power on the volatility of government security yields.

Scholars have suggested that externalities such as technology spillovers to domestic firms from the entry and presence of foreign firms – i.e., Foreign Direct Investment (FDI) spillovers – arise only when domestic firms possess adequate absorptive capacity. But they have also maintained a predominantly technological focus in their conceptualization of absorptive capacity, treating it mostly as a function of domestic firms' technological investments. Yet, several anecdotes point to finance constraints being equally important hurdles to absorbing technology. Given the comparatively scant attention to finance constraints in the FDI spillover literature, we present theoretical arguments and a counterfactual simulation for how finance constraints influence firms' realization of FDI spillovers. In the process, we identify two mechanisms underlying why firms facing high finance constraints experience lower FDI spillovers. (125 words).

This study examines whether caste affiliation influences the ability to obtain credit from institutional sources. We employ Fourth All India Census of Micro, Small and Medium Enterprises 2006–2007 data to empirically verify this relationship. We conduct an econometric analysis of loan outcomes by the caste affiliation of the firm owner and observe that firms owned by socially disadvantaged groups have a lower probability of obtaining formal credit even after controlling for differences in creditworthiness and other factors. Our results also show that discrimination by formal credit institutions extends to the amount of the loan sanctioned. These results thus suggest that affirmative action programs in India have not had much impact on credit market access for socially marginalized entrepreneurs, and policymakers should address this concern by introducing special programs and regulatory incentives to encourage banks and others to increase their lending toward these disadvantaged groups.

This paper analyses the role of sunk costs and firm heterogeneity in firm decision to enter and exit export markets. Employing rich firm-level data on Indian manufacturing firms, the study points out that sunk costs in terms of previous export experience significantly explain entry and exit decisions of firms in the export market. The first set of analysis involves estimation of dynamic discrete choice model using random effects probit correcting for initial conditions problem. We find evidence that previous export experience (sunk costs) matters for export decision. However, importance of sunk costs is found to depreciate rapidly. Further, analysis across sub-sample of firms accounting for firm heterogeneity factors like size and product level information supports the hypothesis of sunk costs. Second set of analysis involving firm survival in export markets using discrete-time hazard models shows evidence of negative duration dependence. We observe that those firms which continue to export for few years are less likely to exit from export markets.

This study examines the extent to which financing constraints affect the research and development (R&D) expenditure of Indian manufacturing firms during the period 1991-2011. Using dynamic R&D investment model, we find significant positive relationship between a firm's R&D expenditure and internal cash flow. We lend support to the financing constraint hypothesis by showing higher cash flow sensitivity for small and young firms. Further, we explore the effect of business group affiliation and financial market liquidity on the relationship between financial factors and investments in R&D. We fail to find any significant advantage for group-affiliated firms, indicating ineffectiveness of business groups in alleviating financial constraints. Further, we observe that sample firms do not use external equity to finance their R&D even during periods of hot-equity market and are not engaging in R&D smoothing using cash reserves.

This paper analyses spatial interaction in public spending decisions across 22 Indian states during the period 1980–1981 to 2014–2015. In particular, we estimate interactive hypotheses for different proximities of states using a spatial panel data approach. The empirical results support strong spatial interaction and yardstick competition in public spending. Interactive behavior among the states has been found to be consistent and conditional on per capita income, fiscal transfers, infrastructure, literacy and population density. Interaction arising from yardstick competition significantly affects public spending decisions. The present study realizes the need for a well-developed and comprehensive network to strengthen the interdependence in public spending among the states for higher welfare gain.

This study attempts to investigate the impact of international trade on the manufacturing employment and wages in India over the period 1980–2005. Given India’s abundant labour force, the empirical evidence will provide an indication on the role of trade openness in labour market in terms of employment and wages. We employ three standard modelling approaches, namely, factor content, growth decomposition and panel data modelling approaches, to verify the role of trade on employment and wages. We use panel data at the industry level obtained from Annual Survey of Industries (ASI) and World Bank trade data set. Our results suggest that international trade has not had any significant impact on employment generation in the manufacturing sector in India. While there is little evidence on any significant effect of export orientation on employment, import penetration had a detrimental effect on employment generation.

The present study investigates the growth barriers of informal sector enterprises in India. The empirical analysis is based on the National Sample Survey Organization's unit-level data for three years, 2000-2001, 2005-6, and 2010-11. The results of the study reveal: proprietary and large firms survive and grow; enterprises managed by women are less likely to decline; inadequate power supply poses a severe growth obstacle to all categories of firms; and proprietary firms encounter capital shortage while large firms are constrained by the non-availability of raw materials. We do not find evidence of sub-contracting acting as an enabling factor in firm growth.