What drives the boom in outward FDI from India?

Munmi Saikia, Khanindra Ch. Das and Saundarjya Borbora

International Journal of Emerging Markets, 2020, vol. 15, issue 5, 899-922

Abstract: Purpose - The Indian economy has experienced a boom in outward FDI (OFDI) in 2006. The study aims at exploring the factors that drive the boom in OFDI of Indian firms. Design/methodology/approach - The participation of a firm in OFDI is a two-stage process -first, the decision to internationalization and second, how much to invest. We employ a two-stage model to decompose the effects on the decision to internationalization from effects on how much to invest. The two-stage model has the advantage of allowing us to estimate separately the probability of internationalization by a firm – Pr(OFDI > 0) – and the expected volume of investment, E(OFDI|OFDI > 0). The former is estimated by the probit model and the latter is estimated by the ordinary least square model. Findings - The study finds that prior experience and institutional advantage can strongly drive the internationalization of Indian multinationals. The study also examines the relative importance of two aspects of prior knowledge – length of prior knowledge and depth of prior knowledge on OFDI of Indian firms. The study finds that the depth of prior knowledge is a must influential driver of OFDI in comparison to its length. Originality/value - The present study is a novel attempt to investigate, ‘What drives the boom in OFDI from India?’

Keywords: Emerging economies; OFDI; Internationalization; Indian multinationals (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijoemp:ijoem-12-2017-0538

DOI: 10.1108/IJOEM-12-2017-0538

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