Institute for Social and Economic Change
Working Paper: 256
Engineering Industry, Corporate Ownership
and Development: Are Indian Firms Catching Up
with the Global Standard?
Rajdeep Singha and K Gayithri
The presence of multinational corporations (MNC) in the developing economies has to a certain extent, has enhanced efficiency across domestic firms, comparable to the advanced economies. This paper seeks to examine the extent of this convergence between the foreign and domestic firms in the context of the Indian engineering industry. This paper uses a stochastic production function technique to evaluate separately the efficiency of foreign and domestically owned engineering firms. Econometric models help explain not only the nature of convergence but also the factors underlying the variations in terms of efficiency.
This paper brings to the fore the difference between productivity and efficiency across foreign and domestic firms in that ownership has a significant effect on the performance of firms. This paper also reveals that domestic firms, which have achieved efficiency levels almost equaling foreign firms, are faring better than other firms. At the individual level, trade liberalisation has had a significant impact on the efficiency of firms.