FDI Liberalisation, Firm Heterogeneity and Foreign Ownership: German Firm Decisions in Reforming India

Holger Görg · Henning Mühlen · Peter Nunnenkamp

22 citations0/0 files storedThe Journal of Development Studies

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International Business and FDI Corporate Finance and Governance Global trade and economics

Abstract

The paper investigates the role of firm-level productivity and industry-level R&D for multinational enterprises' (MNEs') choice of undertaking foreign direct investment (FDI), and the share of ownership in foreign affiliates. Two firm-specific datasets on German MNEs with varying equity stakes in Indian affiliates are used to account for the two-step decision process. The paper also analyses how German firm decisions were affected by the liberalisation of FDI regulations in India. Results show remarkable differences between the selection and the ownership share equation, and also between the pre-reform and post-reform periods. The evidence clearly reveals the trade-offs involved in selective FDI approvals and foreign ownership restrictions.

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References

2004Export Versus FDI with Heterogeneous Firms 2002Multinational Firms and the Theory of International Trade 1988The Multinational Corporation's Degree of Control over Foreign Subsidiaries: An Empirical Test of a Transaction Cost Explanation 1991The Transaction Costs Theory of Joint Ventures: An Empirical Study of Japanese Subsidiaries in the United States 1999Technology transfer and spillovers: Does local participation with multinationals matter?2004Market Potential and the Location of Japanese Investment in the European Union 1989Ownership structures of foreign subsidiaries 2006To share or not to share: Does local participation matter for spillovers from foreign direct investment?

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