Munich Personal RePEc Archive

Location Determinants of Indian Outward Foreign Direct Investment: How Multinationals Choose their Investment Destinations?

Anwar, Amar Iqbal and Hasse, Rolf and Rabbi, Fazli (2008): Location Determinants of Indian Outward Foreign Direct Investment: How Multinationals Choose their Investment Destinations?

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Abstract

This paper seeks to examine the location determinants of foreign direct investment (OFDI) considering the case of Indian Multinational Enterprises(MNEs.) using disaggregates country level data for the year 1970‐ 1990. A rich body of literature and empirical studies exists on specific ownership advantages of Indian MNEs and their reasons of internationalization. Nevertheless, still there exists a knowledge Gap in the literature on the question of choice of investment destination and motives behind investment, especially in the case of Indian MNEs. This paperexplainsthe motives behind theinvestment of multinationals with a focus on Indian firms. Based on the insights from the theory, six important variables are considered in the analysis on the data set during 1970‐ 1990 and an Ordinary Least Square (OLS) regression and censored Tobit model are employed to empirically analyze the host country specific characteristics that give an incentive to Indian Multinationals to choose their investment destinations in the world. Our empirical results have indicated that real GDP, real GDP per capita income, geographic distance and real GDP deflator of the host country arethesignificant determinants in the case of Indian outward foreign direct investment. The theoretical part showsthat overtime a shift has occurred in Indian multinationalsinvestment‐from developing to developed economies. As a policy guideline, countries ambitious of attracting foreign direct investment need to prioritizethesefactors whileformulating policies and programs asthetrend in the investment of the Indian MNEs would leave a big impact on the growth of the both the host country and Indian economy as well. The successful emergence of third world multinational enterprises (TWMNEs) like Indian firms sets an example for other developing countriesin the world and therefore beincorporated into the policy paradigm.

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