Foreign Direct Investment and Indian Export Performance: An Empirical Study

Abstract

In terms of International Economics, FDI inflows have the potentials of enhancing the exports of manufactured goods produced in the host nation. In the context of India, depending on the methodology applied, the scholars obtain conflicting findings. Authors argue that if FDI, as variable, can explain export performance, then the sectors receiving higher proportions of FDI should be dominant exporters. Empirical findings fail to prove it. In fact, industries dominating the export-pie are the industries of Indian comparative advantage. If MNCs focus on the profits of grabbing the local market, the incentive for the exports appears weak. As per OLI Paradigm, Multinational Enterprises take the FDI strategy to overcome the difficulties of cross-border trade, not to enhance cross-border trade. Therefore, if the country wants FDI to augment export earnings, following the line of Malaysia and Thailand, it should pursue the strategy of permitting inflow of export-oriented FDI only.