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

Chakrabarti, R and Subramanian, K and Meka, S (2017) Localization of FDI Flows: Evidence on Infrastructure as a Critical Determinant. Journal of Law, Finance, and Accounting, 2 (1). pp. 205-246. ISSN 2380-5013

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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.

Item Type: Article
Subjects: Financial Management
Business and Management
Date Deposited: 11 Jun 2017 14:32
Last Modified: 04 Jul 2023 17:53
URI: https://eprints.exchange.isb.edu/id/eprint/537

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