Localization of FDI flows: Evidence on Infrastructure as a Critical Determinant
57 Pages Posted: 15 Mar 2011 Last revised: 28 Apr 2020
Date Written: March 14, 2017
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
JEL Classification: F3
Suggested Citation: Suggested Citation