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.

Publication Date: 06 Jun 2017
© 2017 R. Chakrabarti, K. Subramanian, and S. Meka
International business
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.