India in the International Production Network: The Role of Outward FDI

  • Khanindra Ch. DasEmail author
Part of the India Studies in Business and Economics book series (ISBE)


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.


Parts and components Production network Global value chain Outward FDI India 


  1. Amann E, Swati V (2015) Is the evolution of India’s outward FDI consistent with Dunning’s investment development path sequence? Economics working paper series 2015/019. Lancaster University Management School, LancasterGoogle Scholar
  2. Amighini AA (2012) China and India in the international fragmentation of automobile production network. China Econ Rev 23:325–341CrossRefGoogle Scholar
  3. Amighini AA, Franco C (2013) A sector perspective on Chinese outward FDI: the automotive case. China Econ Rev 27:148–161CrossRefGoogle Scholar
  4. Anderson JE, Yoto VY (2012) Gold standard gravity. Working paper no 17835, National Bureau of Economic ResearchGoogle Scholar
  5. Ando M (2006) Fragmentation and vertical intra-industry trade in East Asia. North Am J Econ Finan 17:257–281CrossRefGoogle Scholar
  6. Ando M, Kimura F (2005) The formation of international production and distribution networks in East Asia. In: Takatoshi I, Rose AK (eds) International trade in East Asia, NBER-East Asia seminar on economics, vol 14. University of Chicago Press, Chicago, pp 177–213CrossRefGoogle Scholar
  7. Anwar A, Mughal M (2013) The role of diaspora in attracting Indian outward FDI. Int J Social Econ 40:944–955CrossRefGoogle Scholar
  8. Arvis J-F, Yann D, Ben S, Chorthip U (2012) Trade costs in the developing world: 1995–2010. ARTNeT working paper series no 121. ESCAP, BangkokGoogle Scholar
  9. Athukorala P-C (2009) Outward foreign direct investment from India. Asian Dev Rev 26:125–153Google Scholar
  10. Athukorala P-C (2010) Production networks and trade patterns in East Asia: regionalization or globalization? ADB working paper series on regional economic integration, no 56. Asian Development Bank, ManilaGoogle Scholar
  11. Athukorala P-C (2011) Asian trade flows: trends, patterns, and projections. ADB economics working paper series, no 241. Asian Development Bank, ManilaGoogle Scholar
  12. Balasubramanyam VN, Forsans N (2010) Internationalisation drivers of Indian firms. Asia Bus Manag 9:319–340CrossRefGoogle Scholar
  13. Bhattacharya R, Patnaik I, Shah A (2012) Export versus FDI in services. World Econ 35:61–78CrossRefGoogle Scholar
  14. Buckley PJ, Jeremy Clegg L, Cross AR, Liu X, Voss H, Zheng P (2007) The determinants of Chinese outward foreign direct investment. J Int Bus Stud 38:499–518CrossRefGoogle Scholar
  15. Buckley PJ, Forsans N, Munjal S (2012) Home-host country linkages and home-host country specific advantages as determinants of foreign acquisitions by Indian firms. Int Bus Rev 21:878–890CrossRefGoogle Scholar
  16. Buckley PJ, Munjal S, Enderwick P, Forsans N (2016) Do foreign resources assist or impede internationalisation? Evidence from internationalisation of Indian multinational enterprises. Int Bus Rev 25:130–140CrossRefGoogle Scholar
  17. Cheng I-H, Wall HJ (2005) Controlling for heterogeneity in gravity models of trade and integration. Fed Reserve Bank of St. Louis Rev 87:49–63Google Scholar
  18. Das KC (2013) Home country determinants of outward FDI from developing countries. Margin—J Appl Econ Res 7:93–116Google Scholar
  19. Das KC (2015) Outward FDI by Indian manufacturing MNEs: impacts and implications. ARTNeT working paper series no 148. ESCAP, BangkokGoogle Scholar
  20. Das KC, Banik N (2015) What motivates Indian firms to invest abroad? Int J Commerce Manag 25:330–355CrossRefGoogle Scholar
  21. Demirbas D, Patnaik I, Shah A (2013) Graduating to globalization: a study of Southern multinationals. Ind Growth Dev Rev 6:242–259CrossRefGoogle Scholar
  22. Dietzenbacher E, Los B, Stehrer R, Timmer M, de Vries G (2013) The construction of world input-output tables in the WIOD project. Econ Syst Res 25:71–98CrossRefGoogle Scholar
  23. Duanmu J-L (2014) A race to lower standards? Labor standards and location choice of outward FDI from the BRIC countries. Int Bus Rev 23:620–634CrossRefGoogle Scholar
  24. Gaur AS, Kumar V, Singh D (2014) Institutions, resources, and internationalization of emerging economy firms. J World Bus 49:12–20CrossRefGoogle Scholar
  25. Goldar B (2016) Direction of outward FDI of Indian manufacturing firms: influence of technology and firm productivity. In: De Beule F, Narayanan K (eds) Globalization of Indian industries: productivity, exports and investment. Springer, Singapore, pp 71–96Google Scholar
  26. Goh SK, Wong KN (2011) Malaysia’s outward FDI: the effects of market size and government policy. J Policy Model 33:497–510CrossRefGoogle Scholar
  27. Goh SK, Wong KN, Tham SY (2013) Trade linkages of inward and outward FDI: evidence from Malaysia. Econ Model 35:224–230CrossRefGoogle Scholar
  28. Greenaway D, Kneller R (2007) Firm heterogeneity, exporting and foreign direct investment. Econ J 117:F134–F161CrossRefGoogle Scholar
  29. Gubbi SR, Aulakh PS, Ray S, Sarkar MB, Chittoor R (2010) Do international acquisitions by emerging-economy firms create shareholder value? The case of Indian firms. J Int Bus Stud 41:397–418Google Scholar
  30. Hansen MW (2010) In search of “Indianness” of Indian multinational enterprises: is there anything special about the Indian path to outward foreign direct investment? In: Sauvant KP, Jaya Prakash P, Ayesha C, Brian H (eds) The rise of Indian multinationals: perspectives on Indian outward foreign direct investment. Palgrave Macmillan, New York, pp 25–55Google Scholar
  31. Hattari R, Rajan RS (2010) India as a source of outward foreign direct investment. Oxf Dev Stud 38:497–518CrossRefGoogle Scholar
  32. Head K, Ries J (2003) Heterogeneity and the FDI versus export decision of Japanese manufacturers. J Japan Int Econ 17:448–467CrossRefGoogle Scholar
  33. Helpman E, Melitz MJ, Yeaple SR (2004) Exports versus FDI with heterogeneous firms. Am Econ Rev 94:300–316CrossRefGoogle Scholar
  34. Hsu J (2016) Firm productivity and mode of foreign expansion: evidence from Taiwanese manufacturing firms. Global Econ Rev 45:405–415CrossRefGoogle Scholar
  35. Jain NK, Kundu SK, Newburry W (2015) Efficiency-seeking emerging market firms: resources and location choices. Thunderbird Int Bus Rev 57:33–50CrossRefGoogle Scholar
  36. Kathuria V (2010) Outward FDI from India—are there any lessons for other developing countries? Development research unit discussion paper DEVDP 10/02, Monash UniversityGoogle Scholar
  37. Kim S (2000) Effects of outward foreign direct investment on home country performance: evidence from Korea. In: Ito T, Krueger AO (eds) The role of foreign direct investment in East Asian economic development, NBER-EASE, vol 9. University of Chicago Press, pp 295–317Google Scholar
  38. Kim J-D, Kang I-S (1996) Outward FDI and exports: the case of South Korea and Japan. J Asian Econ 8:39–50CrossRefGoogle Scholar
  39. Kolstad I, Wiig A (2012) What determines Chinese outward FDI? J World Bus 47:26–34CrossRefGoogle Scholar
  40. Kumar N (2007) Emerging TNCs: trends, patterns and determinants of outward FDI by Indian enterprises. Trans Corp 16:1–26Google Scholar
  41. Kumar N (2008) Internationalization of Indian enterprises: patterns, strategies, ownership advantages, and implications. Asian Econ Policy Rev 3:242–261CrossRefGoogle Scholar
  42. Kumar N, Chadha A (2009) India’s outward foreign direct investments in steel industry in a Chinese comparative perspective. Ind Corp Change 18:249–267CrossRefGoogle Scholar
  43. Low P (2014) Preferentialism in trade relations: challenges for the World Trade Organization. ADBI working paper series no 478. Asian Development Bank Institute, TokyoGoogle Scholar
  44. Melitz MJ (2003) The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica 71:1695–1725CrossRefGoogle Scholar
  45. Mikic M (2011) Are the India’s trade agreements deep enough to support production networks? In: Anukoonwattaka W, Mikic M (eds) India: a new player in Asian production networks? Studies in trade and investment 75. UN ESCAP, Bangkok, pp 120–136CrossRefGoogle Scholar
  46. Narayanan K, Bhat S (2011) Technology sourcing and outward FDI: a study of IT industry in India. Technovation 31:177–184CrossRefGoogle Scholar
  47. Nayyar D (2008) The internationalization of firms from India: investment, mergers and acquisitions. Oxf Dev Stud 36:111–131CrossRefGoogle Scholar
  48. Novy D (2013) Gravity redux: measuring international trade costs with panel data. Econ Inq 51:101–121CrossRefGoogle Scholar
  49. Nunnenkamp P, Andres MS (2014) Ownership choices of Indian direct investors: do FDI determinants differ between joint ventures and wholly owned subsidiaries? South Asian J Macroecon Pub Finan 3:39–78CrossRefGoogle Scholar
  50. Nunnenkamp P, Andres MS, Vadlamannati KC, Waldkirch A (2012) What drives India’s outward FDI? South Asian J Macroecon Pub Finan 1:245–279CrossRefGoogle Scholar
  51. Paul J, Gupta P (2014) Process and intensity of internationalization of IT firms—evidence from India. Int Bus Rev 23:594–603CrossRefGoogle Scholar
  52. Pradhan JP (2004) The determinants of outward foreign direct investment: a firm-level analysis of Indian manufacturing. Oxf Dev Stud 32:619–639CrossRefGoogle Scholar
  53. Pradhan JP (2007) How do Indian multinationals affect exports from home country? Working paper no 2007/07. Institute for Studies in Industrial Development, New DelhiGoogle Scholar
  54. Pradhan JP (2010) Strategic asset-seeking activities of emerging multinationals: perspectives on foreign acquisitions by Indian pharmaceutical MNEs. Organ Markets Emerg Econ 1:9–31Google Scholar
  55. Pradhan JP, Singh N (2009) Outward FDI and knowledge flows: a study of the Indian automotive sector. Int J Inst Econ 1:156–187Google Scholar
  56. RBI (2010) Indian investment abroad in joint venture and wholly owned subsidiaries: 2009–2010 (April–September). RBI Monthly BulletinGoogle Scholar
  57. Sasidharan S, Padmaja M (2016) Do financing constraints matter for outward foreign direct investment decisions? Evidence from India. Copenhagen discussion paper no 61. Copenhagen Business School, DenmarkGoogle Scholar
  58. Sethi D (2009) Are multinational enterprises from the emerging economies global or regional? Eur Manag J 27:356–365CrossRefGoogle Scholar
  59. Stoian C (2013) Extending Dunning’s investment development path: the role of home country institutional determinants in explaining outward foreign direct investment. Int Bus Rev 22:615–637CrossRefGoogle Scholar
  60. Tan D, Meyer KE (2010) Business groups’ outward: a managerial resource perspective. J Int Manag 16:154–164CrossRefGoogle Scholar
  61. Tan H, Mathews JA (2015) Accelerated internationalization and resource leverage strategies: the case of Chinese wind turbine manufacturers. J World Bus 50:417–427CrossRefGoogle Scholar
  62. Thomas R, Narayanan K (2016) Productivity heterogeneity and export market penetration: a study of Indian manufacturing firms. In: De Beule F, Narayanan K (eds) Globalization of Indian industries: productivity, exports and investment, Springer, Singapore, pp 97–120Google Scholar
  63. Timmer MP, Erumban AA, Los B, Stehrer R, de Vries GJ (2014) Slicing up global value chains. J Econ Perspect 28:99–118CrossRefGoogle Scholar
  64. Timmer MP, Dietzenbacher E, Los B, Stehrer R, de Vries GJ (2015) An illustrated user guide to the world input-output database: the case of global automotive production. Rev Int Econ 23:575–605CrossRefGoogle Scholar
  65. Tiwari R, Cornelius H (2010) The emergence of Indian multinationals: an empirical study of motives, current status, and trends of Indian investment in Germany. In: Sauvant KP, Jaya Prakash P, Ayesha C, Brian H (eds) The rise of Indian multinationals: perspectives on Indian outward foreign direct investment. Palgrave Macmillan, New York, pp 233–253Google Scholar
  66. Tolentino PE (2010) Home country macroeconomic factors and outward FDI of China and India. J Int Manag 16:102–120CrossRefGoogle Scholar
  67. Tomiura E (2007) Foreign outsourcing, exporting, and FDI: a productivity comparison at the firm level. J Int Econ 72:113–127CrossRefGoogle Scholar
  68. UNCTAD (2015) World Investment Report 2015: reforming International Investment Governance, Geneva: United NationsGoogle Scholar
  69. Verma R, Brennan L (2011) The investment development path theory: evidence from India. Int J Emerg Markets 6:74–89CrossRefGoogle Scholar
  70. Wang C, Hong J, Kafouros M, Boateng A (2012) What drives outward FDI of Chinese firms? Testing the explanatory power of three theoretical frameworks. Int Bus Rev 21:425–438CrossRefGoogle Scholar
  71. Wei Y, Zheng N, Liu X, Lu J (2014) Expanding to outward foreign direct investment or not? A multi-dimensional analysis of entry mode transformation of Chinese private exporting firms. Int Bus Rev 23:356–370CrossRefGoogle Scholar

Copyright information

© Springer Nature Singapore Pte Ltd. 2018

Authors and Affiliations

  1. 1.School of ManagementBennett UniversityGreater NoidaIndia

Personalised recommendations