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


  • Nidhiya Menon

    (Brandeis University)

  • Paroma Sanyal

    (Brandeis University)


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, 2005. "Labor Conflict and Foreign Investments: An Analysis of FDI in India," Development and Comp Systems 0504006, EconWPA.
  • Handle: RePEc:wpa:wuwpdc:0504006
    Note: Type of Document - pdf; pages: 31

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    References listed on IDEAS

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    6. Wolfgang Keller & Stephen R. Yeaple, 2009. "Multinational Enterprises, International Trade, and Productivity Growth: Firm-Level Evidence from the United States," The Review of Economics and Statistics, MIT Press, vol. 91(4), pages 821-831, November.
    7. Pitt, Mark M & Rosenzweig, Mark R & Hassan, Md Nazmul, 1990. "Productivity, Health, and Inequality in the Intrahousehold Distribution of Food in Low-Income Countries," American Economic Review, American Economic Association, vol. 80(5), pages 1139-1156, December.
    8. Klein, Michael & Aaron, Carl & Hadjimichael, Bita, 2001. "Foreign direct investment and poverty reduction," Policy Research Working Paper Series 2613, The World Bank.
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    Cited by:

    1. Anurag Banerjee & Nilanjan Banik, 2014. "Is India Shining?," Review of Development Economics, Wiley Blackwell, vol. 18(1), pages 59-72, February.
    2. 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 Businesss School.
    3. 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.
    4. 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.
    5. 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


    Foreign Direct Investment; Labor Disputes; Developing Countries; India.;

    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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