Foreign Technology: Value Added and Factor Productivity of Foreign Affiliates and Local Units – Case of Automobile Ancillary Industry

Abstract

Technology import raises industrial competitiveness through increased productivity and efficiency of the concerned units. Thus, it is necessary for developing countries to have liberal regimes in favor of technology import. Increases in productivity and efficiency lead to competitiveness. However, it is necessary to measure how the adoption of foreign technology leads to better utilization of resources and lowering cost of production. In non-FCA units (units without foreign collaboration), technological backwardness is reflected in high cost of production and low productivity. This paper examines the aspect of technology import by investigating the income generation behavior of selected units of the Indian Automobile Ancillary industry. Based on the data gathered from 84 units for a period of three years, this empirical analysis measures the productivity indices and apply the Cobb-Douglas function to find the elasticity of value addition on account of labor and capital outlays for units operating with or without foreign collaboration. The comparative study of FCA and Non-FCA units, with respect to value added, wages (labor), total assets (capital), and their productivity vis-à-vis growth during period of 1987-88 over 1985-86 concludes that the Non-FCA units performed better in terms of overall efficiency.

Keywords: technology import, automobile ancillary industry, total factor productivity, capital Intensity index, labour productivity index, profitability index, relative value added performance, Cobb-Douglas production function

JEL Classification: C50, D24, D92, F23, L62, O33