Technological Catch-up to the National and Regional Frontier: Firm-level Evidence for India

This paper studies productivity convergence to the regional and national frontiers among manufacturing firms in India, using panel data over the period 1999 to 2010. We find evidence that lagging firms converge to their national and regional frontiers, with faster speed of convergence to the national frontier than to their regional frontier. We extend our analysis to explore how firms’ participation in foreign markets (through exporting and investing abroad) affects the process of convergence. Our results suggest a ranking of firms’ speed of convergence based on their level of international engagement through exports, with non-exporters converging faster to their technological frontiers, followed by non-continuous exporters, and finally by continuous exporters. These results suggest that more established exporters are closer to the technological frontier and therefore have less scope to catch up than their less persistent counterparts and non-exporting firms. However, we did not find significant differences in the speed of convergence amongst exporting firms that have moved to the next stage of globalisation by investing abroad.