The propensity for local innovation and interfirm linkages in transnational corporations versus local enterprises in India

The issue of whether transnational corporations (TNCs) form complementary linkages with domestic suppliers and contribute to the process of creating appropriate new technologies in developing countries has not been systematically explored. Using a rich dataset of over 300 companies in India, we examine if the propensity of foreign affiliates to innovate and to create linkages in host countries is in any way different from that of their local counterparts. Our results show that foreign affiliates foster beneficial horizontal linkages with local suppliers of final goods but spend less effort than local enterprises to develop vertical inter-firm linkages and to create appropriate technologies for Indian markets.