The Role of Country-of-Origin Characteristics for Foreign Direct Investment and Technical Cooperation in Post-Reform India

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The decisions of foreign investors on technical cooperation versus equity engagements and on the degree of ownership in FDI projects are likely to depend on their relative bargaining position vis-à-vis the host country. India provides an interesting case for analyzing the interplay between countryof-origin characteristics and host-country characteristics and their respective effects on ownership decisions since opening up its economy to FDI in the early 1990s. We perform negative binominal regressions by making use of a unique dataset on about 24,500 technical cooperation and FDI projects by investors from 45 countries of origin over the 1991-2004 period. We find that relative market size, relative financial market development, relative risk, relative endowment of human capital and previous international experience significantly affect the type of engagement by foreign investors in post-reform India. Terms of use: Documents in

Bypassing weak institutions in a large late-comer economy

“…While genuine investors locate in regions supplied with educated, productive and skilled labor (see columns 1 and 3 in Table 4) round-trip investors choose locations with low costs and low skills, suggesting their greater involvement in vertical projects that are not skill-intensive (columns 9 and 10 in Table 6). The same result is reported by Dreher et al (2013) for India, where non-resident Indians, roughly comparable to round-trip Russian investors, are less reliant on skilled local labor than FDI from other sources. In addition, governor change in the regions significantly discourages round-trip investors, a factor which is completely irrelevant for genuine investors.…”

“…They can use their experience of operating with underdeveloped institutions and weak governance, thus gaining an advantage over multinationals from developed economies (Cuervo-Cazurra and Genc, 2008). The desire to escape from an environment of higher risk and weaker institutions in the home country may also be a motivation (Dreher et al, 2013). On the other hand, investors from developed countries may be less affected by institutional deficiencies if they have better access to capital or have support from their home governments to protect their property rights (Fan et al, 2009).…”

“…This finding also may demonstrate that mature multinationals from developed countries are more effective in seeking help from the host state through political connections than their peers from new source countries having the same or worse institutions than Russia. As Dreher et al (2013) suggest, this effectiveness may be attributed to the bargaining position of the investor vis-à-vis the host location, which in turn depends on superior technological and managerial knowledge, access to capital, the size of operations and international experience.…”

Factors influencing foreign direct investment in South Asian economies

“…He also noted that factors such as inflation and lending rates have no relationship to FDI in India. Similarly, Dreher et al (2013) revealed that market size, financial market development, relative endowment of human capital, and previous international experience significantly affect the type of engagement by foreign investors in post-reform India. Hunady and Orviska (2014) further found that lower exchange rate volatility and greater risk diversification opportunities facilitate portfolio flows in India.…”

Policy Alteration: Rethinking Diffusion Processes When Policies Have Alternatives

“…Moreover, close countries with high economic flows are more likely to share political and legal approaches to policy adjustment, so learning from neighbors seems a feasible choice for these governments (Dreher et al, 2013).…”