Institutional and economic determinants of Indian OFDI

Abstract

The study explores the primary determinants of Indian OFDI in 26 developed and 81 developing countries by integrating a nuanced perspective of institutional distance with conventional location factors (2008–2018). Our findings indicate that asset augmentation and market-seeking motives are the primary OFDI drivers in developed and developing regions, respectively. Overall, the institutional environment demonstrates a positive association between Indian OFDI and the robust governance quality of the host country (excluding RS investments in developing region). However, only robust regulatory quality (RQ) & control of corruption (CC) are the primary IQ determinants significantly attracting OFDI in developed nations. Surprisingly, none of the WGI significantly drives OFDI in developing countries. However, the interaction effect reveals that only market-seeking investors from India are drawn to highly regulated (RQ), rule-based (RL) developing nations. The estimated FDI factors differ significantly depending on the destination, but RQ largely remains the crucial determinant across regions.

Keywords:

• Institutional environment
• WGI
• India
• PPML
• Outward FDI
• Indian MNEs

JEL Classification:

• F23
• C23
• E02
• G28

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. High institutional quality characterizes a country’s institutional environment (IE), as determined by the World Bank using the approach of Kaufmann et al. (1999) and based on six Worldwide Governance Indicators (WGI).

2. https://unctadstat.unctad.org/EN/Classifications.html.

3. Efficiency-seeking asset augmenting motive in the developed region will also be referred to as asset augmenting motive in the paper.

4. The OFDI routed through offshore financial centers like Panama, the Cayman Islands, and the Bahamas to other host countries, for tax evasion purposes is not part of our main sample study.

Additional information

Funding

The author received no direct funding for this research.

Notes on contributors

Leena Ajit Kaushal

Leena Ajit Kaushal is currently working as Assistant Professor in the area of Economics at Management Development Institute, Gurgaon, India. Her teaching interests include Macroeconomic Environment & Policy, Foreign Direct Investments and International Economics. Her research interest lies in the field of Sustainable Development, Foreign Direct Investment, Macroeconomic policy and Sharing Economy. She is Associate Fellow of the Higher Education Academy (HEA), UK and possesses over 15 years of experience across a range of verticals which include University teaching in multinational and cross-cultural teaching environment, Investment banking industry and research fellowship with UGC grant commission. She is credited with research publications in various refereed national and international journals. She has published books on Managerial Economics by Thompson Publishing, “Global Entrepreneurship and New Venture Creation in the Sharing Economy” by IGI Global and FDI-The Indian Experience by BEP publishers. Her email address is [email protected]