Countries frequently rely on successful assimilation of foreign technology to achieve indigenous growth. But success depends on various factors. The factors include technological capability of the country, transfer costs, government policies, political structure, patent laws etc. In our paper we focus on two of these factors namely, technological capability of the country and transfer costs. We explore technological capability through the “capability creation model” given by Kale and Little (2010). To test the theory empirically, we took data from the Indian pharmaceutical industry. We find that post the year 2005 (i.e., post TRIPs) there is strong IPR regime i.e. reverse engineering is restricted. Because of strong IPR regime there will be more technology transfers because of increase in the royalty payments. We also find a positive and significant relationship between increasing technology transfers post 2005 and firms own R&D expenditure.

KEYWORDS: Royalty Payments, R&D, TRIPs, Technology Transfers, Indian pharmaceutical industry