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Foreign direct investment, prices and efficiency: Evidence from India

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  • Ali, Nesma
  • Stiebale, Joel

Abstract

This paper uses a rich panel dataset of Indian manufacturers to analyze the effects of foreign direct investment (FDI) on domestic firms. Detailed product-level information on prices and quantities allows us to estimate physical productivity and marginal costs. In line with the previous literature, we find little evidence of horizontal spillovers based on commonly used measures of revenue productivity. In contrast, we measure sizable efficiency gains using measures that are not affected by pricing heterogeneity. Our results indicate that domestic firms do benefit from the ability of multinational subsidiaries to produce high-quality products at relatively low cost.

Suggested Citation

  • Ali, Nesma & Stiebale, Joel, 2026. "Foreign direct investment, prices and efficiency: Evidence from India," Journal of International Economics, Elsevier, vol. 159(C).
    • Handle: RePEc:eee:inecon:v:159:y:2026:i:c:s002219962500159x
    DOI: 10.1016/j.jinteco.2025.104202
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    References listed on IDEAS

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    JEL classification:

    • F61 - International Economics - - Economic Impacts of Globalization - - - Microeconomic Impacts
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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