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FDI in Indian Manufacturing: Whither high-tech industries?

Aparna Sawhney and Rashmi Rastogi ()
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Rashmi Rastogi: Institute of Economic Growth

Economics Bulletin, 2019, vol. 39, issue 3, 2192-2209

Abstract: One of the core development objectives of the liberalization regime in India was to enhance FDI in the high-technology industries. Although FDI inflows have increased substantively, it seems that the development goal of technology transfer has not been realized. Moreover, weak enforcement and compliance of environmental norms has put the country at risk of a pollution-haven effect. We examine the pattern of FDI in manufacturing industries, differentiated by technology-intensity and pollution-intensity, to discern the nature of industries that have attracted foreign investment. We build a comprehensive dataset using three databases (on external merchandise trade, foreign investment and domestic production), and find that FDI inflows increased substantially in capital-intensive industries, but not in skill-intensive manufacturing. High-tech export-oriented polluting industries gained significantly, suggesting possibility of a pollution-haven effect through export-platform FDI in polluting industries. In our source-country analysis across industry groups, we find evidence of a pollution-haven effect in high-tech pollution-intensive industries.

Keywords: India; FDI; high-tech industry; pollution haven effect (search for similar items in EconPapers)
JEL-codes: F1 F2 (search for similar items in EconPapers)
Date: 2019-09-30
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