Role of transnational corporations in the evolution of a high-tech industry: The case of India's software industry

Abstract

India's software industry presents the case of an internationally competitive high-tech industry from a developing economy. This paper takes the evolution of the industry in terms of human capital accumulation. The initial stock of human capital leads to entry of transnational corporations (TNC), which triggers a cumulative process of further human capital accumulation through a process of externalities (spillovers) governed by firm-level and market structure dynamics. Spillovers from TNC operations are more effective when TNCs operate at higher end of technology and build backward linkages with local firms and institutions in a developing economy. The empirical exercises, based on the analysis of qualitative information collected through field interviews and econometric analysis of firm-level panel data, provide evidence of the positive contribution of TNCs for the evolution of the industry. © 2002 Elsevier Science Ltd. All rights reserved.