An open or closed technology policy? India's regulation of technology licenses, foreign direct investment, and intellectual property

The government of India has pursued its goal of technological self-reliance by limiting the access of Indian firms to foreign technology, the hope being that Indian firms would respond by performing more research and development (R&D) on their own. The three measures employed by the Indian government were: (1) the adoption of a relatively weak patent regime, (2) the limitation of foreign direct investment (FDI), and (3) the regulation of foreign technology purchase (TP) licenses. This thesis examines the impacts of these policies using firm-level data from the 1975-1983 period.; First, the effects of India's technology policies on R&D are examined in a two-equation system in which both R&D and TP are endogenous variables. The prevalence of corner solutions for R&D and TP necessitates maximum-likelihood estimation of the system, and the panel nature of the data requires that firm-level heterogeneity be addressed through numerical integration techniques. The results indicate that R&D and TP are substitutes for one another, implying that the regulations on technology purchase licenses did stimulate domestic R&D. The estimates also indicate that the overall effect of FDI is to raise R&D, suggesting that India's limitation of FDI reduced R&D. Finally, both domestic and international R&D spillovers have a positive impact on R&D, perhaps implying that India's weak patent protection for foreigners stimulated domestic R&D.; Next, the thesis provides production function estimates which indicate that the private returns to TP far exceed the returns to R&D, implying that the regulations on foreign technology licenses were very costly from a private point of view. These results also confirm the importance of international and domestic spillovers in the production of knowledge.; Using the factor choice and production function estimates, policy simulations are conducted which quantify the effects of changing government policies on the levels of R&D TP, output, and profits. The simulations suggest that due to corner solutions there is little leverage for the closed technology policy to stimulate domestic R&D and that the costs of such policies are quite high.