Health Empirics

The effect of foreign investment on the productivity of a knowledge-intensive industry such as pharmaceuticals holds much importance. The present firm-level study uses a non- parametric mathematical linear programming model, Data Envelopment Analysis based on Malmquist Productivity Index to calculate and compare productivity, efficiency change and technical change of foreign and domestic firms of Indian pharmaceutical sector for the period 2001-2020. The findings include that foreign investment has a positive impact on the productivity of the firms. Foreign firms adapted better to the technological progress as compared to the domestic firms. The sector also experienced a regression in efficiency, especially in the years registering technological progress suggesting that a majority of firms are not able to enjoy the benefits but certain firms have progressed due to foreign investment and shifted the production frontier outwards. Domestic firms’ productivity would improve through mergers and acquisitions, government support for public– private technical collaborations, expansion of research and development capabilities, and assistance in importing raw materials.

Keywords: Data Envelopment Analysis, Malmquist Productivity Index, Productivity, Technical Change, Foreign Direct Investment