FDI and Business Internationalization of the Unorganized Sector: Evidence from Indian Manufacturing

GOA Institute of Management, Working Paper Series No. 2016/01/EC

23 Pages Posted: 18 Aug 2016

See all articles by Hamid Beladi

Hamid Beladi

University of Texas at San Antonio - College of Business - Department of Economics

Meghna Dutta

Indian Institute of Technology, Patna

Saibal Kar

Centre for Studies in Social Sciences, Calcutta; Institute of Labor Economics (IZA)

Date Written: Nov 1, 2015

Abstract

Available evidence, though limited to the organized sector only, suggests that FDI generally flowing in with MNE activities or FIIs generate technological and market access spillovers for firms outside the core group in destination countries. We investigate the organizational link between formal and informal sectors in India and argue that the spread of internationalization is more when production outsourcing prevails between such units. Higher wage in the organized sector is a factor that breaks standard institutional barriers leading to outsourcing of production to informal units. The evidence is puzzling to the extent that foreign capital and better know-how as drivers of international business to developing countries usually relax the credit constraint facing formal sector units at the destination. Using a measure of technology and a panel data for a large number of industrial units in India, we show that FDI transmitted through technology spill over leads to significant increase in the gross value added for the firms located in the informal sector. The paper points out that production reorganization associated with international business should provide additional insights for standard measures of internationalization of production and services.

Keywords: FDI, organized firms, outsourcing, technology, India

JEL Classification: L11, L24

Suggested Citation

Beladi, Hamid and Dutta, Meghna and Kar, Saibal, FDI and Business Internationalization of the Unorganized Sector: Evidence from Indian Manufacturing (Nov 1, 2015). GOA Institute of Management, Working Paper Series No. 2016/01/EC. Available at SSRN: https://ssrn.com/abstract=2825046 or http://dx.doi.org/10.2139/ssrn.2825046

Hamid Beladi

University of Texas at San Antonio - College of Business - Department of Economics ( email )

One UTSA Circle
P.O. Box 5636
San Antonio, TX 78249
United States
210-458-7038 (Phone)
210-458-7040 (Fax)

Meghna Dutta (Contact Author)

Indian Institute of Technology, Patna ( email )

Room 515, Block 6
IIT Patna, Bihta
Patna, Bihar 801103
India

HOME PAGE: http://www.iitp.ac.in

Saibal Kar

Centre for Studies in Social Sciences, Calcutta ( email )

R-1, Baishnabghata Patuli Township
Calcutta, 700 094
India
91-33-2462 7252 (Phone)
91-33-2462 6183 (Fax)

HOME PAGE: http://www.cssscal.org

Institute of Labor Economics (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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