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Joint effects of exporting and outward FDI on firm‐level capital investment in India

Sourafel Girma and Hibret Maemir

Review of Development Economics, 2022, vol. 26, issue 1, 606-624

Abstract: This paper examines the simultaneous impacts of exporting and outward foreign direct investment (OFDI) on the domestic investment of Indian manufacturing firms. Combining difference‐in‐differences with generalized propensity score matching estimators, we find that greater engagement in exporting and OFDI is associated with a higher domestic capital investment, although the magnitude of these effects differs across firms depending on the intensity of their participation and the interaction between these two decisions. Whereas exporting is associated with a monotonic increase in firms’ domestic capital investment, we find a hump‐shaped relationship between the intensity of firms’ OFDI engagement and their subsequent domestic capital investment. We also document evidence that firms that simultaneously export and invest abroad tend to exhibit a higher level of domestic investment, suggesting that these two decisions are complementary in relation to their effect on domestic capital investment.

Date: 2022
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