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Graduating to globalisation: a study of Southern multinationals

Author

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  • Dilek Demirbas
  • Ila Patnaik
  • Ajay Shah

Abstract

Purpose - – Recent developments in the literature on international trade and foreign direct investment (FDI) emphasise the role of firm characteristics in shaping firm participation in exports and FDI. The seminal work of Melitz and Helpman-Melitz-Yeaple (HMY) places heterogeneity in firm productivity at the heart of exporting and FDI. While the HMY hypothesis finds support for firms in the industrialised economies, the evidence from developing economies is limited. This paper attempts to contribute empirical insights into the theoretical framework laid out by Melitz, Helpmanet al., Head and Ries with evidence from India. Design/methodology/approach - – While related literature takes into account several firm-specific and country-specific characteristics to explain outward FDI, the paper unifies the firms ' choice of markets (domestic versus foreign) and mode of serving foreign markets (export versus FDI) in a single framework in the line of the HMY model. The paper uses an ordered probit model that combines domestic market-oriented, exporting and outward FDI-oriented firms in a quality ladder. Findings - – The findings are that there are strong differences between the characteristics of domestic firms, exporting firms, and firms that invest abroad. The differences between these firms are consistent with the HMY model. The most productive firms appear to walk up this ladder of quality and graduate to globalisation through exporting and then through FDI. Originality/value - – A key innovation of this paper is an ordered probit model that combines domestic market-oriented, exporting and outward FDI-oriented firms in a quality ladder. The paper also brings empirical insights into the theoretical framework laid out by Melitz, Helpmanet al., Head and Ries with evidence from India.

Suggested Citation

  • Dilek Demirbas & Ila Patnaik & Ajay Shah, 2013. "Graduating to globalisation: a study of Southern multinationals," Indian Growth and Development Review, Emerald Group Publishing Limited, vol. 6(2), pages 242-259, November.
    • Handle: RePEc:eme:igdrpp:v:6:y:2013:i:2:p:242-259
    DOI: 10.1108/IGDR-12-2012-0050
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    Cited by:

    1. Koray Aktas & Valeria Gattai, 2021. "Inward FDI, outward FDI, and firm-level performance in India," Working Papers 481, University of Milano-Bicocca, Department of Economics, revised Sep 2021.
    2. Prajukta Tripathy & Pragyanrani Behera & Bikash Ranjan Mishra, 2023. "Study of linkages between productivity, export, and outward foreign direct investment: An empirical perspective of Indian manufacturing industries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 1527-1548, April.
    3. Filomena Pietrovito & Alberto Franco Pozzolo & Luca Salvatici, 2016. "Internationalization choices: an ordered probit analysis at industry level," Empirical Economics, Springer, vol. 50(2), pages 561-594, March.
    4. Patnaik, Ila & Shah, Ajay, 2010. "Why India Choked when Lehman Broke," India Policy Forum, National Council of Applied Economic Research, vol. 6(1), pages 39-72.
    5. Rudrani Bhattacharya & Ila Patnaik & Ajay Shah, 2012. "Export Versus FDI in Services," The World Economy, Wiley Blackwell, vol. 35(1), pages 61-78, January.
    6. Aurora Teixeira & Cátia Coimbra, 2014. "The determinants of the internationalization speed of Portuguese university spin-offs: An empirical investigation," Journal of International Entrepreneurship, Springer, vol. 12(3), pages 270-308, September.
    7. International Monetary Fund, 2010. "Export Versus FDI in Services," IMF Working Papers 2010/290, International Monetary Fund.

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    More about this item

    Keywords

    India; Productivity; Firm internationalisation; HMY model; Outbound FDI;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • D20 - Microeconomics - - Production and Organizations - - - General

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