Localization of FDI Flows: Evidence on Infrastructure as a Critical Determinant

Rajesh Chakrabarti, Krishnamurthy Subramanian and Sesha Meka

Journal of Law, Finance, and Accounting, 2017, vol. 2, issue 1, 205-246

Abstract: The localization of Foreign Direct Investment (FDI) to a few economies represents a puzzling aspect of international business. We study the provision of public infrastructure as a determinant of such localization. We employ unique data at the district level in India. We identify using variation: (i) among sectors within a district depending upon the sector’s propensity to attract FDI at the national level; and (ii) FDI into surrounding districts. We find that FDI inflows remain insensitive to changes in infrastructure till a threshold is reached; thereafter, FDI inflows increase steeply with an increase in infrastructure. This non-linear effect potentially explains why FDI remains restricted to a few countries.

Keywords: BRIC; District; Infrastructure; FDI; India; International Corporate Finance; International Business; MNE (search for similar items in EconPapers)
JEL-codes: F3 F63 O18 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:now:jnllfa:108.00000016

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