Please cite this article in press as: Sharma, C. Exporting, access of foreign technology, and firms’ performance: Searching the link in Indian manufacturing. The Quarterly Review of Economics and Finance (2017), https://doi.org/10.1016/j.qref.2017.11.015 ARTICLE IN PRESS G Model QUAECO-1093; No. of Pages 17 The Quarterly Review of Economics and Finance xxx (2017) xxx–xxx Contents lists available at ScienceDirect The Quarterly Review of Economics and Finance journal homepage: www.elsevier.com/locate/qref Exporting, access of foreign technology, and firms’ performance: Searching the link in Indian manufacturing Chandan Sharma Indian Institute of Management, Lucknow, India a r t i c l e i n f o Article history: Received 28 October 2016 Received in revised form 7 November 2017 Accepted 18 November 2017 Available online xxx JEL classifications: F14 D22 L60 Keywords: Total factor productivity Learning-by-exporting Foreign technology Innovation a b s t r a c t This study tests the impact of export and foreign technology on the indicators of firm’s performance for a sample of Indian manufacturing firms. To provide new insights into the debate over the linkage among export, technology, and performance, we employ several important performance indicators of firms, such as labor productivity, total factor productivity, product and process innovation, wage, size, and capacity utilization. For this study, we utilize a sample of firms from a recent Enterprise Surveys data of the World Bank on Indian manufacturing. The results of the analysis indicate that exporters are more productive and innovative. They are also large and utilize the capacity in a better way. The results further indicate that export leads to substantial performance gain for Indian firms. Similar results are also estimated for the effects of the use of foreign technology in the production process. Our findings also suggest that exporting products to the developed world have a significant effect on performance and further indicate that single product firms are more benefited from export and technology transfer than multi-product firms. It is also found that firms with more productivity decide to export their products; however, technology transfer is not a significant factor in making decisions about export or enhancing export-intensity. Overall, our analysis supports the argument that research and development (R&D) in the developed countries is an important source of technology for developing countries, and this takes place through export as well as direct technology transfer. © 2017 Board of Trustees of the University of Illinois. Published by Elsevier Inc. All rights reserved. 1. Introduction Unlike the firms operating in a closed or highly protected mar- ket environment, firms in open and liberalized international trade environment garner benefit from the export and flow of technolog- ical knowledge from their developed counterpart. Firms that export become more productive over time owing to the learning effect associated with export and the spillover effect of advance tech- nology invented and utilized by their developed counterparts. The recent empirical literature on trade and firm performance, espe- cially after the works of Bernard and Jensen (see Bernard & Jensen, 1995, 1999, 2004), offers enough favorable evidence to validate this proposition. The role of export and foreign technology in improving firms’ performance, especially the productivity of firms, has now become very crucial for a developing country like India, which is moving steadily towards a liberalized trading system by gradually unshackling the chains of protectionist policies. Endogenous growth models assert the effect of export on pro- ductivity and innovation (e.g. Grossman & Helpman, 1991). There E-mail address: chandanieg@gmail.com could be some important channels of this effect. For instance, it is necessary for the highly competitive export markets to invest in technology and innovation in order to remain competitive. Further, firms involved in exports are exposed to superior foreign knowl- edge and technology, which helps them to learn and improve, i.e., ‘learning by exporting’, to boost the productivity (Ganotakis & Love, 2011; Kobrin, 1991). The ‘scale effect’ may also be vital because through export it is possible to extend the boundaries of market, and since R&D costs are largely fixed, such investments may be recouped over a larger sales volume. This augments productivity, and provides greater incentives to invest in R&D and innovation. The empirical evidence on export, R&D, and foreign technology transfer has a mixed result. On one side, Bernard and Jensen (1997), Hallward-Driemeier, Iarossi, and Sokoloff (2002), Baldwin and Gu (2003), Aw, Roberts, and Winston (2007), Aw, Roberts, and Xu (2008), Damijan, Polanec, and Prasnikar (2004), Ferguson (2010), Lileeva and Trefler (2010), Bustos (2011), Long, Raff and StD ahler (2011), and Iacovone and Javorcik (2012) provide evidence in sup- port of export, technology adoption, and firm’s R&D activities that could also have a positive and sizable impact on productivity. On the other side, Greenaway, Gullstrand, and Kneller (2005), Damijan and Kostevc (2006), Bigsten and Gebreeyesus (2009), and Sharma and https://doi.org/10.1016/j.qref.2017.11.015 1062-9769/© 2017 Board of Trustees of the University of Illinois. Published by Elsevier Inc. All rights reserved.