Inward Foreign Direct Investments (FDI) and Location Choice Determinants: Empirical Evidence from India
Viewed = 0 time(s)
The main purpose of this research was to determine the nature of the relationship between inward FDI flow into India and selected sets of FDI location determinants. The paper also investigates the exact impact of the individual FDI location determinants on inward FDI flow into India. Following these objectives, eight variables relating to the inward FDI locational advantage theory were selected, with data running from 1965-2018. The investigated location determinants for inward FDI include tax, market size (GDP), a measure of market potential (GDPPC), human capital (education), wage cost, Ease of Doing Business (DB), and measure of economic progress (GDP growth). The method of data analysis involved the application of OLS regression, taking note of the necessary assumptions for the use of OLS. The results of the study indicate that GDP growth is the only significant FDI location determinant in India, with a positive impact of about 0.57. This implies that the Indian government should prioritise policies that seek to boost GDP
Alam, A., & Shah, S. (2013). Determinants of foreign direct investment in OECD member countries. Journal of Economic Studies, 40(4), 515-527.
Alfaro, L. (2003). Foreign Direct Investment and Growth: Does the Sector Matter? . Harvard Business School, Working Paper.
Ang, J. B. (2009). Financial development and the FDI-growth nexus: the Malaysian experience. . Applied Economics , 41, 1595–1601.
Asiedu, E. (2002). The Determinants of Foreign Direct Investment to Developing Countries: Is Africa Different? World Development, 30(1).
Asiedu, E. (2005). Foreign Direct Investment in Africa: The Role of Natural Resources, Market Size, Government Policy, Institutions and Political Instability. Asiedu, E. (2005), Foreign Direct Investment in Africa: The Role of Natural Resources, Market Size, Government Policy, Insti UNU- WIDER, Finland.: Asiedu, E. (2005), Foreign Direct Investment in Africa: The Role of Natural Resources, Market Size, Government Policy, Institu World Institute for Development Economics Research.
Asteriou, D., & Hall, S. G. (2011). Applied Econometrics (2nd ed.). Basingstoke: Macmillian.
Bajpai, N., & Sachs, J. (2000). Bajpai, N. and Sac Foreign Direct Investment in India: Issues and Problems. Development Discussion Paper. 759. Cambridge. MA: Bajpai, N. and Sachs, J.D., 2000. Foreign Direct Investment in India: Issues and Problems. Development Dis Harvard Institute for International Development. Harvard University. Cambridge. MA.
Barros, C. P., Caporale, G. M., & Damásio, B. ((2013). “Foreign Direct Investment in the Asian Economies.” EconomicWorking Paper 13-20. London: Brunel University.). Foreign Direct Investment in the Asian Economies. Barros, C. P.; Caporale, G. M. and Damásio, B. (2013). “Foreign Direct Invest Economics and Finance Working Paper, 13-20.
Belderbos, R., & Carree, M. (2002). The Location of Japanese Investments in China: Agglomeration Effects, Keiretsu, and Firm Heterogeneity. Keire Journal of the Japanese and International Economies, K16(2), 194–211.
Belkhodja, O., Mohiuddin, M., & Karuranga, E. (2016). The determinants of FDI location choice in China: a discrete-choice analysis. 1241-1254. doi: https://doi.org/10.1080/00036846.2016.1153786
Belkhodja, O., Mohiuddin, M., & Karuranga, E. (2017). The determinants of FDI location choice in China: a discrete-choice analysis. APPLIED ECONOMICS, 49(13), 1241–1254.
Bevan, A., & Estrin, S. (2004). The determinants of foreign direct investment into European transition economies. Journal of Comparative Economics, 32(4), 775–787.
Bhattacharya, A., Montiel, P., & Sharma, S. (1996). Bhattacharya, A., Montiel Capital Flows to Sub-Saharan Africa: An Overview of Trends and Determinants. Washington DC: World Bank.
Birsan, M., & Buiga, A. (2009). FDI determinants: Case of Romania. Transition Studies Review, 15(4), 726-736.
Blomström, M., & Lipsey, R. E. ( 1991). Firm Size and Foreign Operations of Multinationals. The Scandinavian Journal of Economics , 93(1), 101–107.
Boateng, G. O., Boateng, A. A., & Bampoe, H. S. (2015). MICROFINANCE AND POVERTY REDUCTION IN GHANA: EVIDENCE FROM POLICY BENEFICIARIES. REVIEW OF BUSINESS AND FINANCE STUDIES, 6(1).
Botric, V., & Škuflic, L. (2006). Main Determinants of Foreign Direct Investment. Transition Studies Review, 13(2), 359-377.
Breen, M., & Gillanders, R. (2011). Corruption, Institutions and Regulation. UCD Centre For Economic Resear Working Papers Series.
Broadman, H. G., & Sun, X. (1997). The Distribution of Foreign Direct Investment in China. World Economy , 20(3), 339–361.
Buch, C. M., & Lipponer, A. (2004). ‘FDI versus Cross-border Financial Services: The Globalisation of German Banks. Discussion Paper No. 5.
Buckley, P. J., & Casson, M. (1976). The Future of the Multinational Enterprises. London: Macmillan.
Campos, N., & Kinoshita, Y. ( 2002). Foreign Direct Investment as Technology Transferred: Some Panel Evidence from the Transition Economies. Campos, N.F., and Y. Kinoshita. 2002. “Foreign Direct Investment as Technology Transferred: SoWorking Paper no. 438.
Cantwell, J. A. (1989). Technological Innovation and Multinational Corporations. Oxford: Basil Blackwell.
Carkovic, M., & Levine. (2002). CarkoviDoes foreign direct investment accelerate economicgrowth? Working Paper. Opgeroepen op Febuary 10, 2017, van Carkovic, M., & Levine. (2002). Does foreign direct investment accelerate economicgUniversity of Minnesota Department of Finance: Carkovic, M., & Levine. (2002). Does foreign direct investment accelerate econhttp://www.ssrn.com/abstract=314924.
Cassidy, J. F. (2002). Japanese Direct Investment in China: Locational Determinants and Characteristics. New York: Rutledge.
Caves, R. E. (1996). Multinational enterprise and economic analysis. Cambridge: Cambridge University Press.
Chakraborty, C., & Nunnenkamp, P. (2008). Economic Reforms, Foreign Direct Investment and Economic Growth in India: A Sector Level Analysis . World Development, 36(7), 1192-1212.
Chen, C. (1996). Regional Determinants of Foreign Direct Investment in Mainland China . Journal of Economic Studies , 23(2), 18–30.
Chen, E. (1983). Multinational Corporations Technology and Employment. London: Macmillan.
Cheng, L. K., & Kwan, Y. K. (2000). What are the determinants of the locationof foreign direct investment: The Chinese experience. Cheng, L. K., & Kwan, Y. K. (2000). What are the determinants oJournal of InternationalEconomics, 51, 379–400.
Chowdhury, A., & Mavrotas, G. (2006). FDI and growth: What causes what? The world economy. United Nations University.
Corcoran, A., & Gillanders, R. (2015). Foreign direct investment and ease of doing business. Review of World Economics, 151(1), 103 - 126.
Corcoran, A., & Gillanders, R. (2015). Foreign direct investment and the ease of doing business. Review of World Economics, 151(1), 103–126 .
Das, D. (2014). China and the Asian Economies: Interactive Dynamics, Synergy and Symbiotic Growth. London: Routledge.
Dauti, B. (2009). Determinants of Foreign Direct Investment in Macedonia. Evidence from times series 1994-2008, Proceeding of FIKUSZ’09 Symposium for Young Researchers. Dauti Bardhyl, (2009), Determinants of Foreign Direct Investment in Macedonia. Evidence from times series 1994-2008, Proceeding of FIKUSZ’09 Symposium fo Budapest Hungary: Dauti Bardhyl, (2009), Determinants of Foreign Direct Investment in Macedonia. Evidence from times series 1994-2008, Proceeding of FIKUSZ’09 SymposiuBudapest Tech Keleti Karoly Faculty of Economics .
Djankov, S., Freund, C., & Pham, C. S. (2010). Trading on Time. The Review of Economics and Statics, 92(1), 166 - 173.
Djankov, S., McLiesh, C., & Ramalho, R. (2006). Regulation and Growth. The World Bank.
DU, J., LU, Y., & TAO, Z. (2008). FDI LOCATION CHOICE: AGGLOMERATION VS INSTITUTIONS. INTERNATIONAL JOURNAL OF FINANCE AND ECONOMICS, 13, 92–107 .
Dunning, J. H. (1973). The determinants of international production. Oxford Economic Papers.
Dunning, J. H. (1988). The theory of international production. International Trade Journal, 1, 21–66.
Dunning, J. H. (1998). Location and the multinational enterprise: A neglected factor? Journal of International Business Studies, 29(1), 45–66.
Dunning, J. H., & McQueen, M. (1982). DunThe Eclectic Theory of the Multinational Enterprise and the International Hotel Industry’, in Rugman A. (ed.), New Theories of Multinational Enterprise. Dunning J.H. and McQueen M. (1982), ‘The Eclectic Theory of the Multinational Enterprise and the InternationNew York:: Dunning J.H. and McQueen M. (1982), ‘The Eclectic Theory of the Multinational Enterprise and the InternatioSt. Martin’s press.
Dunning, J., & Narula, R. (1996). The investment development path revisited: some emerging issues. In: Dunning, J.H., Narula, R. (Eds.), Foreign Direct Investment and Governments. London: Routledge.
Erdal, F., & Tatoglu, E. (2002). Locational Determinants of Foreign Direct Investment in an Emerging Market Economy: Evidence from Turkey. Multinational Business Review, 10(1).
Fedderke, J., & Romm, A. ( 2006). Growth impact and determinants of foreign direct investment into South Africa, 1956-2003. Economic Modeling, 23(5), 738-760.
Froot, K., & Stein, J. (1991). Exchange Rate and Foreign Direct Investment: An Imperfect capital Markets Approach. Quaterly Jounal of Economics, 1191-1217.
Fung, K. C., Iizaka, H., & Parker, S. (2002). Determinants of U.S. and Japanese Direct Investment in China. Journal of Comparative Economics , 30(3), 567–578.
Galán, J. I., & González-Benito, J. ( 2006). Ga Distinctive determinant factors of Spanish FDI in Latin America. Journal of World Business, 41(2), 171-189.
Gillanders, R., & Whelan. (2010). Open For Business? Institutions, Business, Environment and Economic Development. Working Papers 201040.
Gola, K., Dharwal, M., & Agarwal, A. (2013). Role of Foreign Direct Investment in the Development of Indian Economy. Gola, K.R., Dharwal, M. and Agarwal, A., 2013. Role of Foreign DiGyanpratha- ACCMAN Journal of Management, 5(1).
Government of India. (2012). Foreign Direct Investment Policy. Mubai: Ministry of Commerce and Industry, Department of Industrial Policy and Promotion.
Granger, C. (1980). Testing for causality: A personal viewpoint. Journal of Economic Dynamics and Control, 2, 329-352.
Gujarati, D. N., & Porter, D. C. (2010). Essentials of Econometrics. New York: McGrall-Hill/Irwin.
Hargreaves, C. P. (1994). Non-Stationary Time Series Analysis and Cointegration (Advanced Texts in Econometrics). Oxford: Oxford University Press.
He, C. (2001). Locational choices and export decisions of foreign manufacturing enterprises in China. Tempe: He, C. (2001). “Locational choices and export decisions of fo Unpublished doctoral dissertation, Arizona State University.
Head, K., & Ries, J. (1996). Inter-City Competition for Foreign Investment: Static and Dynamic Effects of China’s Incentive Areas. Journal of Urban Economics, 40(1), 38–60.
Hymer, S. (1960). The International Operations of National Firms: A Study of Direct Foreign Investments. Cambridge, MA: MIT Press.
Indian Express. (2005, November 11). Indian Policy on FDI. Mubai.
Insah, B. (2013). Foreign direct investment and economic growth in Ghana. International Journal of Economic Practices and Theories, 3(2), 2247 - 7225.
Janicki, H. P., & Wunnava, P. V. (2004). Determinants of Foreign Direct Investment: Empirical Evidence from EU Accession Candidates. Applied Economics , 36(5), 505–509.
Jayasuriya, D. (2011). Improvements in the World Bank’s Ease of Doing Business Rankings; Do they translate into greater foreign direct investment inflows? Development Policy Centre Discussion Paper, 8.
Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of Economic Dynamics and Control, 12(2), 231-254.
Kinuthia, B. K., & Murshed, S. M. (2015). FDI determinants: Kenya and Malaysia compared. Journal of Policy Modeling, 37, 388-400.
Kyrkilis, D., & Pantelidis, P. (2003). Macroeconomic Determinants of Outward Foreign Direct Investment. International Journal of Social Economics, 30, 827–836.
Lokesha, B., & Leelavathy, D. (2012). Determinants of Foreign Direct Investment: a macro perspective. Lokesha B.K., Leelavathy, D.S., 2012. Determinants of FoShri Ram Centre for industrial Relations and Human Resources.
Majumdar, B. ( 1980). A case study of the industrial organization theory of Foreign Direct Investment. Weltwirtschaftliches Archive, No. 2.
Makino, S., Lau, C., & Yeh, R. (2002 ). Asset-exploitation versus asset-seeking: Implications for location choice of foreign direct investment from newly industrialized economies. Journal of International Business Studies, 33(3), Makino S, Lau C.M. and Yeh, R.S. (2002), ‘Asset-exploitation versus asset-seeking: Implications for location choice of foreign direct investm403–421.
Mohiuddin, M., & Su, Z. (2013). Manufacturing Small and Medium Size Enterprise’s Offshore Outsourcing and Competitive Advantage: An Exploratory Study on Canadian Offshoring Manufacturing SMEs. Mohiuddin, M., and Z. Su. (2013). “Manufacturing Small and Medium Size Enterprise’s Offshore OutsourcinJournal of Applied Business Research , 29(4), 1111–1130.
Moran, T. H., Graham, E. D., & Blomsstrom, M. ( 2005). Does Foreign Direct Investment Promote Development? . Moran, T.H., Graham, E.D. and Blomsstrom, M., 2005. Does Foreign DirecWashington. DC. 411.: Moran, T.H., Graham, E.D. and Blomsstrom, M., 2005. Does For Institute for International Economics-Center for Global Development.
Morris, R., & Aziz, A. (2011). Ease of doing business and FDI inflow to Sub‐Saharan Africa and Asian countries. Cross Cultural Management: An International Journal.
Moshirian, F. (1997). Foreign Direct Investment in Insurance Services in the United States. Journal of Multinational Financial Management, 7, 159–173.
Moshirian, F. (2001). International Investment in Financial Services. Journal of Banking and Finance, 25, 317–337.
Nair-Reichert, U., & Weinhold, D. (2001). Causality tests for cross-country panels: Anew look on FDI and economic growth in developing countries. Nair-Reichert, U., & Weinhold, D. (2001). Causality tests for cross-coOxford Bulletin of Economics and Statistics, 63(2), 153–171.
Nangpiire, C., Rodrgues, R. G., & Adam, I. O. (2018). Ease of doing business and foreign direct investment inflow among Sub-Sahara African countries. International Journal of Business and Emerging Markets, 10(3), 289 - 302.
Nonnenberg, M., & Mendonca, M. (2004). The determinants of direct foreign investment in developing countries. Nonnenberg, M. and Mendonca, M., (2004) The determinants of direct Proceedings of the 32th Brazilian Economics Meeting. Brazil.
Noorbakhsh, F., Paloni, A., & Youseff, A. (2001). Human Capital and FDI Inflows to Developing Countries: New Empirical Evidence. World Development, 29, 1593–1610.
Odozi, V. A. (1995). An overview of foreign investment in Nigeria 1960 – 1995. Occasion Paper, No.11.
Office for National Statistics. (2017). Key Economic Time Series Data. Opgehaald van www.ons.gov.uk: http://webarchive.nationalarchives.gov.uk/20160105160709/http://www.ons.gov.uk/ons/site-information/using-the-website/time-series/index.html
Pan, Y. (2003). The inflow of foreign direct investment to China: the impact of country-specific factors. Journal of Business Research, 56, 822-833.
Phillips, P. C., & Person, P. (1988). Testing for Unit Roots in Time Series Regression. Biometrika, 75, 335-346.
Piwonski, K. (2010). Does the ‘Ease of Doing Business’ In a Country Influence its Foreign Direct Investment Inflows? Honors Projects in Finance, 13.
Porter, M. (1990). The Competitive Advantage of Nations. New York: Free Press.
Raff, H., & Von der Ruhr, M. ( 2001). ‘Foreign Direct Investment in Producer Services: Theory and Empirical Evidence. Opgeroepen op January 17, 2017, van Raff, H. and Von der Ruhr, M (2001), ‘Foreign Direct Investment in Producer S http://www.cesifo.de/pls/guestci/download/F5534/598.PDF.
Ranjan, V., & Agrawal, G. (2011 ). FDI inflow determinants in BRIC countries: a panel data analysis. International Business Research , 4(4), 255–263.
Root, F. R., & Ahmed, A. (1979). Empirical Determinants of Manufacturing Direct foreign Investment in Developing countries. Economic Development and Cultural Change, 27, 751-767.
Rosetta, M. A. (2011). Ease of doing business and FDI inflow to Sub-Saharan Africa and Asia countries: Cross Cultural Management. An International Journal, 18(4), 400 - 411.
Saunders, M., Lewis, P., & Thornhill, A. (2012). Reasrch methods for business students. Essex: Pearson Education Limited.
Scaperlanda, A., & Maurer, L. (1969). The determinants of US Direct investment in the EEC . American Economic Review, 59, 558-568. .
Seetanah, B., & Khadaroo, A. ( 2007). Seetanah, B. and Foreign direct investment and growth: new evidences from Sub-Saharan African countries. Paper Presented at Economic Development in Africa 2007. Seetanah, B. and Khadaroo, A.J., 2007. Foreign direct investment and growth: new evidences from SCSAE Conference.
Sethi, D., Guisinger, S. E., Phelan, S. E., & Berg, D. M. (2003). Trends in Foreign Direct Investment Flows: A Theoretical and Empirical Analysis. Journal of International Business Studies, 34(4), 315–26.
Sharmiladevi, J., & Saifilali, M. (2013). Sharmiladevi, J.C. an An Empirical Examination of the Determinants of Foreign Direct Investment in India. Sharmiladevi, J.C. and Saifilali, M.I., 2013. An Empirical Examination of the Determi The International Journal of economics and Business Studies.
Singhania, M., & Gupta, A. (2011). Determinants of foreign direct investment in India. Journal of International Trade Law and Policy, 10(1), 64-82.
Terpstra, V., & Yu, C. M. (1988). ‘Determinants of Foreign Investment of US Advertising Agencies. Journal of International Business Studies, 19, 33–46.
Uddina, M., Chowdhuryb, A., Zafarc, S., Shafqueb, S., & Liu, J. (2019). Institutional determinants of inward FDI: Evidence from Pakistan. International Business Review, 28, 344-358.
UKTI. (2014). UK attracts highest levels of inward investment on record. LONDON: UKTI.
Vogiatzoglou, K. (2016). Ease of Doing Business and FDI Inflows in ASEAN. Journal of Southeast Asian Economies, 33(3), 343-363.
Wadhwa, K., & Reddy, S. S. (2011). Foreign Direct Investment into Developing Asian Countries: The Role of Market Seeking, Resource Seeking and Efficiency Seeking Factors. International Journal of Business and Management, 6(11).
Wang, Z. Q., & Swain, N. J. ( 1995). The Determinants of Foreign Direct Investment in Transforming Economies: Empirical Evidence from Hungary and China. Weltwirtschaftliches Archiv , 131(2), 359–382.
Wei, Y., & Liu, X. (2001). Foreign Direct Investment in China: Determinants and Impact. Cheltenham: Edward Elgar.
Wei, Y., Liu, X., Parker, D., & Vaidya, K. (1999). The Regional Distribution of Foreign Direct Investment in China. Regional Studies , 33(9), 857–867.
World Bank. (1996). World debt tables: external financing for developing countries. Washington DC.: The World Bank.
Xu, Z., & Yeh, A. (2013). Origin Effects, Spatial Dynamics and Redistribution of FDI in Guangdong, China. Tijdschrift Voor Economische En Sociale Geografie , 104(4), 439–455.
Yin, F., Ye, M., & Xu, L. (2014). Location Determinants of Foreign Direct Investment in Services: Evidence from Chinese Provincial-level data. London: Asia Research Centre, LSE.
Zhang, X., & Yuk, H. P. ( 1998). Determinants of Hong Kong manufacturing investment in China: a survey. Marketing Intelligence and Planning, 16(4).
Zhao, H., & Zhu, G. (2000). Location Factors and Country- Of-Origin Differences: An Empirical Analysis of FDI in China. Multinational Business Review , 8(1), 60–73.
Copyright (c) 2021 Sixtus Cyprian Onyekwere, Oludamilola Otuyelu
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.