Localization of FDI flows: Evidence on Infrastructure as a Critical Determinant

57 Pages Posted: 15 Mar 2011 Last revised: 28 Apr 2020

See all articles by Krishnamurthy Subramanian

Krishnamurthy Subramanian

Indian School of Business (ISB), Hyderabad

Rajesh Chakrabarti

O. P. Jindal Global University

Sesha Meka

Indian Institute of Management (IIMB), Bangalore

Date Written: March 14, 2017

Abstract

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

Subramanian, Krishnamurthy and Chakrabarti, Rajesh and Meka, Sesha, Localization of FDI flows: Evidence on Infrastructure as a Critical Determinant (March 14, 2017). Indian School of Business, Available at SSRN: https://ssrn.com/abstract=1712185 or http://dx.doi.org/10.2139/ssrn.1712185

Krishnamurthy Subramanian (Contact Author)

Indian School of Business (ISB), Hyderabad ( email )

Hyderabad, Gachibowli 500 019
India

Rajesh Chakrabarti

O. P. Jindal Global University ( email )

Sonepat Narela road
Sonepat
Sonepat, Haryana 131001
India

Sesha Meka

Indian Institute of Management (IIMB), Bangalore ( email )

Bannerghatta Road
Bangalore, Karnataka 560076
India

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