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Natural disasters, intra-national FDI spillovers, and economic divergence: Evidence from India

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  • Friedt, Felix L.
  • Toner-Rodgers, Aidan

Abstract

This paper studies the effects of natural disasters on foreign direct investment, considering the case of India. We document large and persistent investment reductions in affected regions following a disaster as well as lasting positive spillovers into otherwise unaffected Indian regions. Intra-national relocations account for more than two-thirds of the losses in affected areas, explaining the puzzlingly small country-level findings of previous works. Furthermore, we show that these investment shifts tend to flow into more developed, less disaster-prone regions, fueling the prominent divergence in India’s economic growth. Combined, our results suggest that multinational firms consider both local cost and region-specific disaster risk when selecting locations for production.

Suggested Citation

  • Friedt, Felix L. & Toner-Rodgers, Aidan, 2022. "Natural disasters, intra-national FDI spillovers, and economic divergence: Evidence from India," Journal of Development Economics, Elsevier, vol. 157(C).
    • Handle: RePEc:eee:deveco:v:157:y:2022:i:c:s0304387822000438
    DOI: 10.1016/j.jdeveco.2022.102872
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    3. Robert Reinhardt, 2022. "Shaking up Foreign Finance: FDI in a Post-Disaster World," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-03908250, HAL.
    4. Robert Reinhardt, 2022. "Shaking up Foreign Finance: FDI in a Post-Disaster World," Working Papers halshs-03908250, HAL.
    5. Lili Pan & Lin Wang & Qianqian Feng, 2022. "A Bibliometric Analysis of Risk Management in Foreign Direct Investment: Insights and Implications," Sustainability, MDPI, vol. 14(12), pages 1-18, June.
    6. Robert Reinhardt, 2022. "Shaking up Foreign Finance: FDI in a Post-Disaster World," Documents de travail du Centre d'Economie de la Sorbonne 22024r, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Sep 2023.
    7. Li, Xiuqing & Xiao, Liming, 2024. "The impact of urban green business environment on FDI quality and its driving mechanism: Evidence from China," World Development, Elsevier, vol. 175(C).
    8. Robert Reinhardt, 2022. "Shaking up Foreign Finance: FDI in a Post-Disaster World," Post-Print halshs-03908250, HAL.
    9. Robert Reinhardt, 2022. "Shaking up Foreign Finance: FDI in a Post-Disaster World," Documents de travail du Centre d'Economie de la Sorbonne 22024, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.

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    More about this item

    Keywords

    Foreign direct investment; Multinational corporations; Natural disasters; Risk; Economic growth; Divergence;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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