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Labor Conflict and Foreign Investments: An Analysis of FDI in India

Author

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  • Nidhiya Menon
  • Paroma Sanyal

Abstract

This paper analyzes patterns of foreign direct investment in India. We investigate how labor conflict, credit constraints, and indicators of a state's economic health influence location decisions of foreign firms. We account for the possible endogeneity of labor conflict variables in modeling the location decisions of foreign firms. This is accomplished by using a state‐specific fixed effects framework that captures the presence of unobservables, which may influence investment decisions and labor unrest simultaneously. Results indicate that labor unrest is endogenous across the states of India, and has a strong negative impact on foreign investment.

Suggested Citation

  • Nidhiya Menon & Paroma Sanyal, 2007. "Labor Conflict and Foreign Investments: An Analysis of FDI in India," Review of Development Economics, Wiley Blackwell, vol. 11(4), pages 629-644, November.
    • Handle: RePEc:bla:rdevec:v:11:y:2007:i:4:p:629-644
    DOI: 10.1111/j.1467-9361.2007.00423.x
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    Cited by:

    1. Nidhiya Menon, 2010. "Obstacles to Business, Technology Use, and Firms with Female Principal Owners in Kenya," Working Papers 20, Brandeis University, Department of Economics and International Business School.
    2. Manabu Furuta & Takahiro Sato & Keijiro Otsuka, 2024. "Successful Foreign Direct Investment Through the Development of Parts Supply Industries in the Host Country: A Study of India's Automobile Manufacturing Sector," The Developing Economies, Institute of Developing Economies, vol. 62(3), pages 195-237, September.
    3. Diti Goswami & Sourabh Bikas Paul, 2020. "Labor Reforms in Rajasthan: A boon or a bane?," Papers 2012.01016, arXiv.org.
    4. David Glick & Nidhiya Menon, 2009. "Public Programs Pare Poverty: Evidence From Chile," Bulletin of Economic Research, Wiley Blackwell, vol. 61(3), pages 249-282, July.
    5. Hiroyuki Nishiyama & Masao Yamaguchi, 2013. "Technological Constraints, Firm Heterogeneity, and Location Choice of Multinational Enterprises," Review of International Economics, Wiley Blackwell, vol. 21(5), pages 996-1005, November.
    6. Anurag Banerjee & Nilanjan Banik, 2014. "Is India Shining?," Review of Development Economics, Wiley Blackwell, vol. 18(1), pages 59-72, February.
    7. Maureen Lankhuizen, 2014. "The (Im)possibility of Distinguishing Horizontal and Vertical Motivations for FDI," Review of Development Economics, Wiley Blackwell, vol. 18(1), pages 139-151, February.
    8. Bo Chen & Yao Li & Yuming Yin, 2016. "FDI, Industry Heterogeneity and Employment Elasticity in China," Review of Development Economics, Wiley Blackwell, vol. 20(1), pages 189-200, February.
    9. Nitin Gupta, 2011. "The Differential Effects of Financial Development on India's Industrial Performance," ASARC Working Papers 2011-12, The Australian National University, Australia South Asia Research Centre.
    10. Dirk Holtbrügge & Carina B. Friedmann, 2016. "Does location choice affect foreign subsidiary success in India? An empirical study based on Porter's diamond model," International Journal of Business and Emerging Markets, Inderscience Enterprises Ltd, vol. 8(1), pages 3-29.

    More about this item

    JEL classification:

    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • O2 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy

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