Complementarity Versus Substitution Relationship between Outward FDI and Exports: Evidence from India

Bishwanath Goldar, Yashobanta Parida and Anindita Goldar

Journal of Asian Economic Integration, 2024, vol. 6, issue 1, 90-117

Abstract: The article is concerned with the relationship between foreign direct investment (FDI) flows and exports and asks if these two flows are substitutes or complement each other. Empirical work in this area employing industry- or country-level data has generally found a positive or complementary relationship between exports and FDI. Our empirical strategy is different in that we try to throw some light on the issue of substitution versus complementarity between FDI and exports by carrying out econometric analyses directed at assessing how India’s mass termination of bilateral investment treaties (BITs) in March 2017 and such BIT terminations during September–December 2016 and April 2017 to December 2018 impacted India’s FDI inflows and imports. Our finding of a significant negative effect of BIT termination on FDI inflows, corroborating the findings of two earlier studies and the finding of a significant positive impact of BIT termination of India’s imports is conceivably reconcilable only if there is a substitution relationship between FDI and exports. Hence, we find some empirical evidence of a substitution relationship between FDI and exports—at least, this has been the relationship between India’s inflow of FDI and the inflow of goods as imports, if not valid for other countries. JEL codes: C31, C33, K33, F21

Keywords: Exports–OFDI relationship; Bilateral investment treaties; India’s FDI and imports; Gravity model; Difference-in-difference (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:sae:jfasei:v:6:y:2024:i:1:p:90-117

DOI: 10.1177/26316846241229827

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