FDI Liberalisation, Firm Heterogeneity and Foreign Ownership: German Firm Decisions in Reforming India

Abstract

The paper investigates the role of firm-level productivity and industry-level R&D for multinational enterprises' (MNEs') choice of undertaking foreign direct investment (FDI), and the share of ownership in foreign affiliates. Two firm-specific datasets on German MNEs with varying equity stakes in Indian affiliates are used to account for the two-step decision process. The paper also analyses how German firm decisions were affected by the liberalisation of FDI regulations in India. Results show remarkable differences between the selection and the ownership share equation, and also between the pre-reform and post-reform periods. The evidence clearly reveals the trade-offs involved in selective FDI approvals and foreign ownership restrictions.

Dynamic marketing capabilities, foreign ownership modes, sub-national locations and the performance of foreign affiliates in developing economies

“…The results confirm that MAIJV perform better than MIIJV in developing economies such as India. This is important evidence in the policy debate with regard to attracting FDI with high potential for good performance, where a trade-off seems to emerge in terms of good performance versus the desire to retain national control of IJV (Görg et al, 2010). (Chen and Hu, 2002).…”

Outsourcing Motives, Location Choice and Labour Market Implications: An Empirical Analysis for European Countries

“…All the same, there are important differences between the two low wage locations. For instance, India remained largely closed to low‐tech and local market‐oriented FDI until recently (Görg et al 2009). By contrast, the public perception of China often neglects that FDI has helped penetrate local Chinese markets.…”

Financing for Development: The Gap between Words and Deeds since Monterrey

“…42 Furthermore, previous experience with selective approval procedures and foreign ownership restrictions points to a serious trade-off. For instance, India's strict regulations up to the early 1990s ensured that realised FDI projects still corresponded to the host country's preferences; however, they substantially reduced the number of realised projects -including those with the preferred high-quality characteristics (Görg et al, 2010). In other words, the overall objective of the Monterrey Consensus to spread the benefits of FDI more widely could hardly be achieved more easily if policymakers in developing host countries targeted high-quality FDI.…”