IDEAS home Printed from https://ideas.repec.org/p/bbv/wpaper/1416.html
   My bibliography  Save this paper

What explains India s surge in outward direct investment?

Author

Listed:
  • Alicia Garcia-Herrero
  • Sumedh Deorukhkar

Abstract

India s outward direct investment (ODI) has grown very fast, especially since the global financial crisis erupted. In this paper, we analyze empirically what are the factors behind the geographical destination of India s ODI. We estimate a gravity model using weighted EGLS into a panel data of 74 ODI destinations from India during 2008 to 2012. Given the sheer size of India’s ODI which is deviated to offshore financial centers awaiting their final destination, we go beyond using the official ODI data by destination and reassign the ODI directed to 5 major offshore financial centers into its most likely final destinations. Both sets of results (with raw data and rearranging India s ODI into offshore centers) suggest that India s direct investors are attracted towards richer countries and not so much proximity with India. Furthermore, countries having a high degree of trade openness are preferred destinations for India s ODI, especially those that export technology but also, to a much lesser extent, exporters of food and fuel. Also, bilateral and/or multilateral free trade agreements with host countries are found to strengthen ODI flows from India. Finally, an efficient governance system in host countries is found to attract higher ODI flows from India. However, when controlling for the existence of off-shore centers, the host country s ability to control corruption is not a significant determinant of India s ODI.

Suggested Citation

  • Alicia Garcia-Herrero & Sumedh Deorukhkar, 2014. "What explains India s surge in outward direct investment?," Working Papers 1416, BBVA Bank, Economic Research Department.
    • Handle: RePEc:bbv:wpaper:1416
    as

    Download full text from publisher

    File URL: https://www.bbvaresearch.com/wp-content/uploads/2014/06/BBVAWP14-16_AGH_Sumedh_What-explains-Indias-surge-in-outward-direct-investment_maq1.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Philippe Aghion & Robin Burgess & Stephen J. Redding & Fabrizio Zilibotti, 2008. "The Unequal Effects of Liberalization: Evidence from Dismantling the License Raj in India," American Economic Review, American Economic Association, vol. 98(4), pages 1397-1412, September.
    2. Mr. Ali J Al-Sadiq, 2013. "Outward Foreign Direct Investment and Domestic Investment: The Case of Developing Countries," IMF Working Papers 2013/052, International Monetary Fund.
    3. Bergstrand, Jeffrey H. & Egger, Peter, 2007. "A knowledge-and-physical-capital model of international trade flows, foreign direct investment, and multinational enterprises," Journal of International Economics, Elsevier, vol. 73(2), pages 278-308, November.
    4. K. C. Fung & Alicia Garcia-Herrero, 2012. "Foreign Direct Investment Outflows From China And India," China Economic Policy Review (CEPR), World Scientific Publishing Co. Pte. Ltd., vol. 1(01), pages 1-15.
    5. Prema-chandra Athukorala, 2009. "Outward Direct Investment from India," Departmental Working Papers 2009-14, The Australian National University, Arndt-Corden Department of Economics.
    6. Nagesh KUMAR, 2008. "Internationalization of Indian Enterprises: Patterns, Strategies, Ownership Advantages, and Implications," Asian Economic Policy Review, Japan Center for Economic Research, vol. 3(2), pages 242-261, December.
    7. Karl P. Sauvant & Jaya Prakash Pradhan & Ayesha Chatterjee & Brian Harley (ed.), 2010. "The Rise of Indian Multinationals," Palgrave Macmillan Books, Palgrave Macmillan, number 978-0-230-11475-3, October.
    8. Nunnenkamp, Peter & Sosa Andrés, Maximiliano & Vadlamannati, Krishna Chaitanya & Waldkirch, Andreas, 2012. "What drives India's outward FDI?," Kiel Working Papers 1800, Kiel Institute for the World Economy (IfW Kiel).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wladimir Andreff, 2014. "Outward foreign direct investment by Brazilian and Indian multinational companies: comparison with Russian-Chinese multinationals," Post-Print halshs-01279896, HAL.
    2. Wladimir Andreff, 2014. "Outward foreign direct investment by Brazilian and Indian multinational companies: comparison with Russian-Chinese multinationals," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01279896, HAL.
    3. Valeria, Gattai & Rajssa, Mechelli & Piergiovanna, Natale, 2016. "FDI and Heterogeneous Firms: Evidence from BRIC Countries," Working Papers 322, University of Milano-Bicocca, Department of Economics, revised 18 Jan 2016.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Prema-chandra Athukorala & C. Veeramani, 2017. "Internationalization of Indian Enterprises: Patterns, Determinants, and Policy Issues," Asian Economic Papers, MIT Press, vol. 16(1), pages 142-166, Winter/Sp.
    2. Khanindra Ch. Das, 2013. "Home Country Determinants of Outward FDI from Developing Countries," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 7(1), pages 93-116, February.
    3. Hermann Sebastian Dehnen & Jan H. van Dinther & Norbert Koubek, 2013. "From emerging economies toward the Emerging Triad," Schumpeter Discussion Papers SDP13008, Universitätsbibliothek Wuppertal, University Library.
    4. Buckley, Peter J. & Munjal, Surender & Enderwick, Peter & Forsans, Nicolas, 2016. "Cross-border acquisitions by Indian multinationals: Asset exploitation or asset augmentation?," International Business Review, Elsevier, vol. 25(4), pages 986-996.
    5. Wladimir Andreff, 2016. "Outward Foreign Direct Investment from BRIC countries: Comparing strategies of Brazilian, Russian, Indian and Chinese multinational companies," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01342391, HAL.
    6. Peter Nunnenkamp & Maximiliano Sosa Andrés, 2014. "Ownership Choices of Indian Direct Investors: Do FDI Determinants Differ between Joint Ventures and Wholly Owned Subsidiaries?," South Asian Journal of Macroeconomics and Public Finance, , vol. 3(1), pages 39-78, June.
    7. Katalin Völgyi & Eszter Lukács, 2021. "Chinese and Indian FDI in Hungary and the role of Eastern Opening policy," Asia Europe Journal, Springer, vol. 19(2), pages 167-187, June.
    8. Valeria Gattai, 2013. "The dragon and the elephant on the way to Italy," ECONOMIA E POLITICA INDUSTRIALE, FrancoAngeli Editore, vol. 2013(4), pages 63-87.
    9. Wladimir Andreff, 2014. "Outward foreign direct investment by Brazilian and Indian multinational companies: comparison with Russian-Chinese multinationals," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01279896, HAL.
    10. Khanindra Ch. Das & Nilanjan Banik, 2015. "Outbound Foreign Direct Investment from China and India," China Report, , vol. 51(3), pages 204-229, August.
    11. Fung, Kwok-chiu & García Herrero, Alicia & Seade, Jesús, 2015. "Beyond minerals: China-Latin American Trans-Pacific supply chain," BOFIT Policy Briefs 5/2015, Bank of Finland Institute for Emerging Economies (BOFIT).
    12. Renaud Bourlès & Gilbert Cette & Jimmy Lopez & Jacques Mairesse & Giuseppe Nicoletti, 2013. "Do Product Market Regulations In Upstream Sectors Curb Productivity Growth? Panel Data Evidence For OECD Countries," The Review of Economics and Statistics, MIT Press, vol. 95(5), pages 1750-1768, December.
    13. Ayyagari, Meghana & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2014. "Does local financial development matter for firm lifecycle in India ?," Policy Research Working Paper Series 7008, The World Bank.
    14. Bauer, Christian & Davies, Ronald B. & Haufler, Andreas, 2014. "Economic integration and the optimal corporate tax structure with heterogeneous firms," Journal of Public Economics, Elsevier, vol. 110(C), pages 42-56.
    15. Myint Moe Chit, 2018. "Political openness and the growth of small and medium enterprises: empirical evidence from transition economies," Empirical Economics, Springer, vol. 55(2), pages 781-804, September.
    16. James E. Anderson, 2011. "The Gravity Model," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 133-160, September.
    17. Dalila Nicet-Chenaf & Eric Rougier, 2009. "Human capital and structural change: how do they interact with each others in growth," Post-Print hal-00798441, HAL.
    18. Crescioli, Tommaso & Martelli, Angelo, 2022. "Beyond the Great Reversal: Superstars, Unions, and the Euro," Single Market Economics Papers WP2022/8, Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs (European Commission), Chief Economist Team.
    19. Philippe Aghion, 2009. "Some Thoughts on Industrial Policy and Growth," Documents de Travail de l'OFCE 2009-09, Observatoire Francais des Conjonctures Economiques (OFCE).
    20. Stephan Huber, 2018. "Product Sophistication and Spillovers from Foreign Direct Investment," Contributions to Economics, in: Product Characteristics in International Economics, chapter 0, pages 51-90, Springer.

    More about this item

    Keywords

    Indian outward direct investments; Host countries;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bbv:wpaper:1416. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: OSCAR DE LAS PENAS SANCHEZ-CARO (email available below). General contact details of provider: https://edirc.repec.org/data/ebbvaes.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.