Academic journal article Management International Review

The Variation in Indian Inward FDI Patterns

Academic journal article Management International Review

The Variation in Indian Inward FDI Patterns

Article excerpt

Abstract:

* This study examines the variation in Indian inward FDI patterns, considering the impact of economic development and geographic location on the variation from both FDI home and host country perspectives.

* Employing a panel dataset at the aggregate country-level, the study is conducted using the generalised least squares (GLS) model.

* The findings suggest that Indian FDI patterns vary over time in line with Indian economic and structural transformations. The patterns also differ between the home country groups in line with their economic development and geographic location relative to India. The desirable patterns of Indian inward FDI are determined not only the development levels of both host and home countries but also the host country's factor endowment pattern.

* it is important for the Indian government to formulate selective targeting FDI policies to maximise economic impact of inward FDI by attracting more desirable efficiency-seeking FDI for higher economic growth.

Keywords: Variation * Inward FDI pattern * Host and home country * Economic development * Geographic location * India

Introduction

With increasing FDI flows into India, the number of studies of inward FDI in the Indian context has been increasing (e.g., Banga 2006; Feinberg and Majumdar 2001; Guha and Ray 2004). However, the studies have mainly focused on the impact of FDI on the economy (Palit and Nawani 2007). Little attention has been paid to detect the variation in Indian inward FDI patterns from the home country perspective or over the host country dynamic development process. However, it is important to recognize that specific FDI patterns are affected and determined by characteristics and attributes of both the FDI host and home country in question. The FDI patterns may vary over the host country economic development stages in conjunction with the changes in its investment environment (Zheng 2009). The patterns may differ between home countries owing to their differences in economic development level and geographic location (Nachum and Zaheer 2005; Zheng and Tan 2011). The examination of pooled cross-section or time-series data without distinction will hide specific country and time-period effects. As argued by Blonigen and Wang (2005), it is important to distinguish between developed and developing countries as pooling of the two is inappropriate for empirical FDI studies.

This study will fill this gap in the literature, considering the impact of both host and home country characteristics on Indian inward FDI patterns. Using the investment development path (IDP) theory (Dunning and Narula 1996) and FDI dynamic theory (Ozawa 1992) as the theoretical foundation, the main research objectives of the study are twofold: First, to examine the variation in Indian inward FDI patterns over the different stages of the host country economic and structural development; and second, to investigate Indian FDI pattern variation between home country groups classified by their economic development levels and geographic locations. The main empirical contributions of the study stem from the distinctive approach of decomposing the panel dataset employed into two dimensions: The time-series will be divided into three phases according to Indian FDI and economic transformation stages and the home countries will be categorised into two sets of groups based on their economic development level and geographic location. To our knowledge, this is the first attempt to use such a decomposition method for studying Indian FDI patterns at the aggregate country level. This approach makes not only an empirical but a theoretical contribution to the existing literature by revealing how the host and home country characteristics influence inward FDI patterns in the Indian context. Our findings have important implications for both policy-makers and business practitioners, in relation to economic policies and investment strategies. …

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