Journal of Law, Finance, and Accounting > Vol 2 > Issue 1

Localization of FDI Flows: Evidence on Infrastructure as a Critical Determinant

Rajesh Chakrabarti, O. P. Jindal Global University, India, Krishnamurthy Subramanian, Indian School of Business, India, Sesha Meka, IIM Bangalore, India,
Suggested Citation
Rajesh Chakrabarti, Krishnamurthy Subramanian and Sesha Meka (2017), "Localization of FDI Flows: Evidence on Infrastructure as a Critical Determinant", Journal of Law, Finance, and Accounting: Vol. 2: No. 1, pp 205-246.

Published: 06 Jun 2017
© 2017 R. Chakrabarti, K. Subramanian, and S. Meka
International business: Foreign direct investment and entry modes,  International business: Emerging markets and economic development
BRICDistrictInfrastructureFDIIndiaInternational Corporate FinanceInternational BusinessMNE

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In this article:
1. Introduction
2. Review of Literature
3. Data and Proxies
4. Results
5. A Theoretical Explanation
6. Conclusion


The localization of Foreign Direct Investment (FDI) to a few economies represents a puzzling aspect of international business. We study the provision of public infrastructure as a determinant of such localization. We employ unique data at the district level in India. We identify using variation: (i) among sectors within a district depending upon the sector’s propensity to attract FDI at the national level; and (ii) FDI into surrounding districts. We find that FDI inflows remain insensitive to changes in infrastructure till a threshold is reached; thereafter, FDI inflows increase steeply with an increase in infrastructure. This non-linear effect potentially explains why FDI remains restricted to a few countries.