Foreign Direct Investment, Firm Heterogeneity, and Exports: An Analysis of Indian Manufacturing

25 Pages Posted: 28 Mar 2018

See all articles by Maitri Ghosh

Maitri Ghosh

University of Calcutta - Bethune College

Saikat Sinha Roy

Jadavpur University - Department of Economics

Date Written: March 27, 2018

Abstract

Using firm-level data, this paper investigates whether foreign direct investment and the presence of multinational enterprises explains India's improved export performance during the postreform period. The recent literature stresses that firm heterogeneity gives some firms an edge over others to self-select into export markets. Apart from ownership, this paper considers firm heterogeneity and other firm-specific factors of export performance. Estimation results show that the impact of foreign ownership on export performance does not significantly differ from that of domestic firms across sectors in Indian manufacturing. Rather, firms build their international competitiveness by importing raw materials and foreign technical know-how, and by investing in research and development. Further, firm heterogeneity, measured in terms of sunk costs, significantly impacts firm-level export intensity. The study also reveals that there are ownership-specific factors that determine firm-level exports.

Keywords: dynamic panel data estimation, export competitiveness, firm heterogeneity, Hausman–Taylor estimation, multinational enterprises

JEL Classification: C23, F16, F23, L25

Suggested Citation

Ghosh, Maitri and Roy, Saikat Sinha, Foreign Direct Investment, Firm Heterogeneity, and Exports: An Analysis of Indian Manufacturing (March 27, 2018). Asian Development Review 35:1. Available at SSRN: https://ssrn.com/abstract=3150622

Maitri Ghosh (Contact Author)

University of Calcutta - Bethune College ( email )

181, Bidhan Sarani
Kolkata, West Bengal 700006
India

Saikat Sinha Roy

Jadavpur University - Department of Economics ( email )

Kolkata, 700032
India

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