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Foreign direct investment, prices and efficiency: Evidence from India

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  • Nesma Ali
  • Joel Stiebale

Abstract

This paper uses a rich panel data set 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 for 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 can benefit from the ability of multinational subsidiaries to produce high-quality products at relatively low costs.

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  • Nesma Ali & Joel Stiebale, 2022. "Foreign direct investment, prices and efficiency: Evidence from India," Discussion Papers 2022-10, University of Nottingham, GEP.
    • Handle: RePEc:not:notgep:2022-10
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    More about this item

    Keywords

    Foreign Direct Investment; Spillovers; Productivity; Marginal Costs; Prices; Markups; Multi-Product Firms;
    All these keywords.

    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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