India in the International Production Network: The Role of Outward FDI
Outward FDI from India has expanded manifold since the liberalization of policy regime. The phenomenon is expected to improve India’s involvement in international production network. The paper examines the role of outward FDI in the manufacturing sector o
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India in the International Production Network: The Role of Outward FDI Khanindra Ch. Das
Abstract Outward FDI from India has expanded manifold since the liberalization of policy regime. The phenomenon is expected to improve India’s involvement in international production network. The paper examines the role of outward FDI in the manufacturing sector on production-network-related trade over the period 2008–2014. The impact of bilateral outward FDI on exports of parts and components to FDI-host countries is investigated using within-transformed fixed effects, and fixed-effects Poisson quasi-maximum likelihood method. The results reveal a positive and significant impact of outward FDI on production-network-related trade, suggesting to the crucial role that manufacturing outward FDI can play in expanding the outreach of Indian manufacturing in the global economy. Towards this end, promotion of outward FDI in the manufacturing sector needs to be accompanied by policy coordination with respect to inward FDI and trade facilitation in order to integrate manufacturing facilities in India with production hubs in the international production network for deriving benefits of global value chains. Keywords Parts and components Outward FDI India
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Production network Global value chain
Introduction
Developing countries have started contributing significantly to outward FDI especially after the global financial crisis. The volume of outward FDI has doubled from 234.52 billion USD in 2009 to 468.15 billion USD in 2014 (UNCTAD 2015). An earlier version of the paper was presented at the 11th Annual Conference of Knowledge Forum, 3–5 December 2016, hosted by IIT Madras. K.Ch. Das (&) School of Management, Bennett University, Plot No. 8-11, TechZone II, Greater Noida 201310, UP, India e-mail: [email protected] © Springer Nature Singapore Pte Ltd. 2018 N.S. Siddharthan and K. Narayanan (eds.), Globalisation of Technology, India Studies in Business and Economics, https://doi.org/10.1007/978-981-10-5424-2_3
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K.Ch. Das
In terms of share in world outward FDI, the figure has gone up from 21% in 2009 to 35% in 2014. The phenomenon is spearheaded by a number of developing countries from Asia and Latin America. The rising volume of outward FDI from developing countries has been attributed to several factors. These include macroeconomic and institutional (Tolentino 2010; Buckley et al. 2007; Goh and Wong 2011; Kolstad and Wiig 2012; Das 2013; Stoian 2013), financial (Gubbi et al. 2010; Sasidharan and Padmaja 2016), home and host country-specific (Sethi 2009; Buckley et al. 2012; Anwar and Mughal 2013; Duanmu 2014), industry and firm-specific factors (Nayyar 2008; Kumar and Chadha 2009; Wang et al. 2012; Amighini and Franco 2013). The firm-specific factors contributing to outward FDI of developing country firms have been looked at from multiple perspectives. While economic factors such as the firm heterogeneity in terms of productivity differences1 are found to be important in explaining internationalization (Demirbas et al. 2013; Wei et
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