Abstract:
Total factor productivity (TFP) is not only influenced by the direct effects of human capital, R&D
(i.e., internal technology building capabilities), embodied & disembodied forms of technology transfer
and know-how through capital imports, FDI and use of foreign intellectual property rights (i.e., traderelated technology transfer activities), but importantly indirectly is affected by components like the
interactive effects of machinery and equipment imports, royalties and licenses fee payments, FDI,
human capital and R&D (i.e., foreign technology absorption capabilities). In this context, this study
has analyzed all the above mentioned direct and indirect effects: internal technology building
capabilities, trade-related technology transfer activities and foreign technology absorption capabilities.
The ARDL technique demonstrates that stable long-run association exists amongst all the chosen
variables. The results indicate that not only investment in human capital boost the TFP, but
expenditures on R&D, imports of machinery and equipment are also crucial determinants of TFP
growth. Surprisingly, FDI appears with a negative sign but the indirect effect of FDI through its
interaction with human capital is positive. This indicates that FDI in the presence of human capital
plays a favourable role in enhancing TFP. Moreover, the imports of machinery directly and indirectly,
in association with both human capital and R&D, increase the growth of TFP. Royalties and licenses
fee payments exert positive but statistically insignificant impact on the TFP growth. These findings
provide evidence that internal technology building capabilities enhances the TFP growth significantly;
while, embodied form of technology transfer (machinery and equipment imports) has a positive and
significant impact on the growth of TFP; whereas, disembodied technology transfer (royalty and
license fee payments) exerts positive but statistically insignificant impact on TFP growth. Furthermore,
it also lends support for the existence of strong foreign technology absorption capabilities.
