What causes outward foreign direct investment (OFDI) from India into least developed countries (LDCs)?

Apoorva Jain and Sonal Thukral

Journal of the Asia Pacific Economy, 2024, vol. 29, issue 3, 1483-1512

Abstract: Although Outward Foreign Direct Investment (OFDI) from India into Least Developed Countries (LDCs) has been increasing amid various initiatives and policy reforms undertaken by the Government of India viz., Duty-Free Tariff Preference Scheme, Asia Africa Growth Corridor etc., India still does not feature amongst the top ten investor economies in LDCs. This makes it imperative to understand what causes OFDI from India into LDCs? Do the host country (LDCs) market-seeking and resource-seeking factors help in pushing OFDI from India into LDCs? For this purpose, the study employs Tobit regression model to empirically test the panel data of 13 LDCs during the period 2008–2018. The results indicate that OFDI from India in LDCs is both market-seeking as well as resource-seeking. It is also observed that OFDI in Asian LDCs is more than African LDCs. However, Bilateral Investment Treaties (BITs) between India and LDCs do not play a significant role in attracting FDI from India into LDCs. Finally, the study proposes important implications for policy makers in India viz. boosting its investment in African LDCs, encouraging private sector enterprises and capturing the untapped potential in the infrastructural projects in LDCs. The study lays down several implications for policy makers in LDCs also, viz. focusing on skill development of human resources, boosting its FDI in sectors like real estate, telecommunications, etc. and ensuring appropriate enforcement of BITs.

Date: 2024
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DOI: 10.1080/13547860.2022.2097619

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