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Technological Capability as a Determinant of FDI Inflows: Evidence from Developing Asia & India

Author

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  • Amitendu Palit

    () (Indian Council for Research on International Economic Relations)

  • Shounkie Nawani

    () (Indian Council for Research on International Economic Relations)

Abstract

This paper contributes to the empirical literature on determinants of FDI by addressing the question: Why do some developing countries from Asia continue to receive more FDI, while others from the region have fallen behind? It finds R&D-based innovative capacities, and the ability to apply such capacities through modern IT-based techniques, as the two key determinants explaining FDI inflows to developing Asian economies. These traits are found significant for inward FDI in India too with more technology intensive sectors receiving greater FDI. The findings of the paper suggest that in the absence of strong technological foundations and well-developed communications infrastructure, liberal policies alone are not enough for drawing FDI, once initial advantages, like cheap labour, fizzle out. For developing countries like India, strong thrust on R&D and innovative skills is needed for attracting FDI in technology-intensive exports. Therefore, policy actions would have to go further than a broad-based opening up of sectors to FDI, and increasing the limit of such investment in these sectors, for sustained inflows of FDI.

Suggested Citation

  • Amitendu Palit & Shounkie Nawani, 2007. "Technological Capability as a Determinant of FDI Inflows: Evidence from Developing Asia & India," Indian Council for Research on International Economic Relations, New Delhi Working Papers 193, Indian Council for Research on International Economic Relations, New Delhi, India.
  • Handle: RePEc:ind:icrier:193
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    File URL: http://www.icrier.org/pdf/Working_Paper_193.pdf
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    References listed on IDEAS

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    1. Acs, Zoltan J & Audretsch, David B, 1988. "Innovation in Large and Small Firms: An Empirical Analysis," American Economic Review, American Economic Association, vol. 78(4), pages 678-690, September.
    2. Bende-Nabende, A. & Ford, J.L. & Sen, S. & Slater, J., 2000. "FDI Locational Determinants and the Linkage Between FDI and Other Macro-Economic Factors: Long-run Dynamics in Pacific Asia," Discussion Papers 00-11, Department of Economics, University of Birmingham.
    3. Ronald Jones, 1970. "The Role of Technology in the Theory of International Trade," NBER Chapters,in: The Technology Factor in International Trade, pages 73-94 National Bureau of Economic Research, Inc.
    4. Robert E. Lipsey, 1999. "The Location and Characteristics of U.S. Affiliates in Asia," NBER Working Papers 6876, National Bureau of Economic Research, Inc.
    5. John H Dunning, 1988. "The Eclectic Paradigm of International Production: A Restatement and Some Possible Extensions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 19(1), pages 1-31, March.
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    1. repec:spr:manint:v:53:y:2013:i:6:d:10.1007_s11575-013-0178-z is not listed on IDEAS

    More about this item

    Keywords

    FDI inflows; technology and technological capabilities; locational advantages; IT-based communication facilities;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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