What causes outward foreign direct investment (OFDI) from India into least developed countries (LDCs)?

Abstract

Although Outward Foreign Direct Investment (OFDI) from India into Least Developed Countries (LDCs) has been increasing amid various initiatives and policy reforms undertaken by the Government of India viz., Duty-Free Tariff Preference Scheme, Asia Africa Growth Corridor etc., India still does not feature amongst the top ten investor economies in LDCs. This makes it imperative to understand what causes OFDI from India into LDCs? Do the host country (LDCs) market-seeking and resource-seeking factors help in pushing OFDI from India into LDCs? For this purpose, the study employs Tobit regression model to empirically test the panel data of 13 LDCs during the period 2008–2018. The results indicate that OFDI from India in LDCs is both market-seeking as well as resource-seeking. It is also observed that OFDI in Asian LDCs is more than African LDCs. However, Bilateral Investment Treaties (BITs) between India and LDCs do not play a significant role in attracting FDI from India into LDCs. Finally, the study proposes important implications for policy makers in India viz. boosting its investment in African LDCs, encouraging private sector enterprises and capturing the untapped potential in the infrastructural projects in LDCs. The study lays down several implications for policy makers in LDCs also, viz. focusing on skill development of human resources, boosting its FDI in sectors like real estate, telecommunications, etc. and ensuring appropriate enforcement of BITs.

Keywords:

• Outward foreign direct investment (OFDI)
• India
• least developed countries (LDCs)
• panel tobit regression model

Acknowledgements

The manuscript was presented at the 7th Copenhagen Conference on Outward Investment from Emerging Economies organised by Copenhagen Business School on 14–15 October, 2021 and has been revised on the basis of the reviews received.

A version of the paper was adjudged the best paper at International Conference on ‘Resilience for Sustainability: Revisiting Management Practices and Strategizing for the Future’ organized by School of Management and Liberal Studies at the NorthCap University (NCU), Gurugram, India, held on March 26, 2021

We are thankful to the reviewers for their valuable and constructive comments on the manuscript.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 There are 27 Low-income countries and 46 Least Developed Countries. As per the World Bank classification, all low-income countries are also classified as least developed countries except Democratic People’s Republic of Korea and Syrian Arab Republic.

Additional information

Notes on contributors

Apoorva Jain

Apoorva Jain, Research Scholar, is pursuing her Doctorate of Philosophy (Ph.D.) from Delhi School of Management, Delhi Technological University (DTU), having completed her Masters in Commerce (M. Com) from Department of Commerce, University of Delhi and Bachelors in Commerce [B. Com (Hons.)] from Shri Ram College of Commerce, University of Delhi. Her area of interest lies in International Business and Family Business Management.

Sonal Thukral

Dr. Sonal Thukral is an Assistant Professor at Delhi School of Management, Delhi Technological University (DTU). She was earlier employed with Shri Ram College of Commerce, University of Delhi as Assistant Professor for over seven years. Prior to academic experience, she worked with S&P Capital IQ and Tecnova India. An alumna of Shri Ram College of Commerce and Hindu College, University of Delhi, she is the recipient of various best research paper awards at conferences (including IIM Indore). She has published various papers in national and international journals. Dr. Thukral has an avid interest in pursuing multidisciplinary studies. She has completed her doctoral studies in the area of finance and international business.