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The effects of expenditure on R&D and purchase of technology on costs in Indian manufacturing is investigated using firm-level data. Expenditures for R&D, royalties, and technical fees are treated as potentially inducing both Hicks-neutral efficiency shifts and substitution between capital and labor in an indirect cos t function framework. The effects of technology expenditure are found to vary by industry, by type of expenditure, and by domestic or foreign origin of seller. Technology expenditures associated with higher levels of Hicks-neutral efficiency are generally also associated wit h higher capital-labor ratios.
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Michael J. Ferrantino (1992) studied this question.
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