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What Attracts FDI in Indian Manufacturing Industries?

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  • Rashmi Rastogi
  • Aparna Sawhney

Abstract

In this paper we examine the pattern of inward FDI at the disaggregated industry level (NIC 3- digit), and test for the industry-specific characteristics that have been significant in attracting foreign investment in India during 2000-10. Since highly polluting industries (based on Central Pollution Control Board classification) have accounted for a substantive share of the FDI inflows, we control for these industries to discern the differential impact of industry characteristics in the dirty manufacturing sector. Our analysis of the FDI inflows focuses on a panel of top ten investing countries, as well as individual countries with relatively stringent environmental norms. Our results indicate that aggregate FDI in India was most significant in capital-intensive industries and those with large market size. Similarly, investment from Japan and UK was most significant in capital-intensive industries. However FDI from the US was significant in less-energy intensive industries, while within the pollution-intensive industries, market size was the main determinant of investment inflow. Only investment from Singapore located in in employment-generating industries. We infer that the pattern of FDI in India has been largely towards capital-intensive industries, and in polluting industries with large market size. But growth in FDI inflow failed to exploit scale economies and generate jobs during the last decade.

Suggested Citation

  • Rashmi Rastogi & Aparna Sawhney, 2014. "What Attracts FDI in Indian Manufacturing Industries?," Competence Centre on Money, Trade, Finance and Development 1402, Hochschule fuer Technik und Wirtschaft, Berlin.
    • Handle: RePEc:mtf:wpaper:1402
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    2. Maria Khan, 2018. "FDI Inflows and Environment in India," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 4(3), pages 138-145, September.
    3. Siddhartha Pradeep, 2022. "Role of monetary policy on CO2 emissions in India," SN Business & Economics, Springer, vol. 2(1), pages 1-33, January.

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    More about this item

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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