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This paper examines returns to scale for a panel of Indian manufacturing firms from 1976–1985, a period in which government regulations restricted firms' expansion. Observers have argued that these regulations led to unexploited scale economies in Indian firms, and our estimates lend limited support to this view. Although a large number of firms produce below the minimum efficient scale, average returns to scale for the various industries are not significantly different from one. Our estimates suggest that recent deregulation will not generate significant gains in scale efficiency unless expansion is heavily biased towards growth in the smaller firms.

Using panel data on Indian firms from 1974-75 to 1981-82, the authors provide estimates of the impact on output of Indian firms' R&D expenditures, their technology purchases, and international and domestic R&D spillovers. The private returns to technology purchases are estimated to be high and statistically significant, while the private returns to firms' own R&D expenditures are somewhat lower and are often insignificant. There is evidence of both international and domestic R&D spillovers. The estimates permit estimation of total factor productivity growth in the period preceding India's industrial liberalization policies. Copyright 1996 by MIT Press.