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, rchakrabarti@jgu.edu.inl Krishnamurthy Subramanian, Indian School of Business, India, Krishnamurthy_Subramanian@isb.edu Sesha Meka, IIM Bangalore, India, sesha13@iimb.ernet.in
 
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. http://dx.doi.org/10.1561/108.00000016

Published: 06 Jun 2017
© 2017 R. Chakrabarti, K. Subramanian, and S. Meka
 
Subjects
International business: Foreign direct investment and entry modes,  International business: Emerging markets and economic development
 
Keywords
F3O18F63
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
References

Abstract

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.

DOI:10.1561/108.00000016