R&D, Foreign Technology and Technical Efficiency in Developing Countries

L. Barasa, P. Kimuyu, B. Kinyanjui, P.A.M. Vermeulen, Joris Knoben

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    Abstract

    This study investigates the relationship between firms’ innovation activities and efficiency in manufacturing firms in developing countries. We examine whether innovation activities including internal research and development (R&D) and adoption of foreign technology have differential effects on technical efficiency. We hypothesize that the relation between internal R&D and technical efficiency is positive; the relation between adoption of foreign technology and technical efficiency is negative and lastly, internal R&D in combination with the adoption of foreign technology have a positive effect on technical efficiency. We use cross-sectional firm level survey data from the 2013 World Bank Enterprise Survey and the linked 2014 Innovation Follow-up Survey for examining the effect of innovation activities on firms’ technical efficiency. We test our hypothesis using cross-sectional stochastic frontier analysis. We find that internal R&D has a negative and significant effect on technical efficiency. Adoption of foreign technology on the other hand does not have a significant effect on technical efficiency. Nevertheless, the combination of internal R&D and adoption of foreign technology has a negative and significant effect on technical efficiency. We conclude that internal R&D may have dynamic effects on technical efficiency. Furthermore, efficiency may be observed in firms conducting internal R&D but results in relative inefficiency for firms not conducting R&D giving rise to overall inefficiency in the manufacturing industry. Lastly, low rates of human capital hamper R&D activity and the adoption of foreign technology in manufacturing firms in developing countries.
    Original languageEnglish
    Place of PublicationTilburg
    PublisherTilburg University
    Number of pages24
    Publication statusPublished - 2015

    Publication series

    NameDFID Working Paper

    Keywords

    • Manufacturing firms
    • internal R&D
    • adoption of foreign technology
    • technical efficiency
    • stochastic frontier analysis

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  • Cite this

    Barasa, L., Kimuyu, P., Kinyanjui, B., Vermeulen, P. A. M., & Knoben, J. (2015). R&D, Foreign Technology and Technical Efficiency in Developing Countries. (DFID Working Paper). Tilburg University.