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

Author

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  • Chakrabarti, Rajesh
  • Subramanian, Krishnamurthy
  • Meka, Sesha

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.

Suggested Citation

  • Chakrabarti, Rajesh & Subramanian, Krishnamurthy & Meka, Sesha, 2017. "Localization of FDI Flows: Evidence on Infrastructure as a Critical Determinant," Journal of Law, Finance, and Accounting, now publishers, vol. 2(1), pages 205-246, June.
    • Handle: RePEc:now:jnllfa:108.00000016
    DOI: 10.1561/108.00000016
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    Cited by:

    1. Hui Wang & Xin Zhong, 2023. "An Empirical Study on the Impact of Chinese OFDI on the Global Value Chain Positions of Countries Along the Belt and Road and Threshold Effects," SAGE Open, , vol. 13(1), pages 21582440231, February.

    More about this item

    Keywords

    BRIC; District; Infrastructure; FDI; India; International Corporate Finance; International Business; MNE;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development

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