Natural disasters, intra-national FDI spillovers, and economic divergence: Evidence from India

Felix Friedt and Aidan Toner-Rodgers

Journal of Development Economics, 2022, vol. 157, issue C

Abstract: This paper studies the effects of natural disasters on foreign direct investment, considering the case of India. We document large and persistent investment reductions in affected regions following a disaster as well as lasting positive spillovers into otherwise unaffected Indian regions. Intra-national relocations account for more than two-thirds of the losses in affected areas, explaining the puzzlingly small country-level findings of previous works. Furthermore, we show that these investment shifts tend to flow into more developed, less disaster-prone regions, fueling the prominent divergence in India’s economic growth. Combined, our results suggest that multinational firms consider both local cost and region-specific disaster risk when selecting locations for production.

Keywords: Foreign direct investment; Multinational corporations; Natural disasters; Risk; Economic growth; Divergence (search for similar items in EconPapers)
JEL-codes: F21 F23 O12 O16 Q54 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:157:y:2022:i:c:s0304387822000438

DOI: 10.1016/j.jdeveco.2022.102872

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