Outward FDI and its impact on the parent firm: A case of Indian manufacturing firms

Amal Krishnan () and Padmaja Mundakkad ()
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Amal Krishnan: National Institute Of Technology, Trichy
Padmaja Mundakkad: National Institute Of Technology, Trichy

Economics Bulletin, 2023, vol. 43, issue 3, 1470 - 1484

Abstract: Outward FDI (OFDI) has recently emerged as an important pathway for emerging market firms to access foreign markets, modern technology, know-how, natural resources and other strategic assets. The policy liberalization efforts of the 1990s and 2000s coupled with the positive global macroeconomic factors led to an increased outflow of FDI from India, with its share in global OFDI flows standing at around 1 per cent in 2021. This paper attempts to study the impact of overseas investment activities of Indian manufacturing firms on the parent firm in the home country. The study uses the RBI's firm-level overseas direct investment data in combination with the financial data sourced from Prowess database for the period 2008-2020. The impact of overseas investment activity on the parent firm's imports, wages, output and employment is analysed by employing the Propensity Score Matching (PSM) method combined with the Difference-in-Difference (DID) technique. Results indicate that overseas investment led to a mild improvement in employment, whereas, total import intensity witnessed a decline in the post-investment period. Output and import of capital goods witnessed improvement over time after investing abroad. Whereas, the impact on wages was insignificant. The analysis calls for policies to encourage Indian firms to venture abroad as it may allow them to access technological and strategic assets and help them in their efforts to move up the value chain

Keywords: Outward FDI; Propensity Score Matching; Difference-in-Difference (search for similar items in EconPapers)
JEL-codes: F1 F2 (search for similar items in EconPapers)
Date: 2023-09-30
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