Impact of Foreign Direct Investment in India

G Bharathi Kamath*
The purpose of the paper is to estimate and analyze the impact of Foreign Direct Investment (FDI) on Gross Domestic Product (GDP) and exports in India for the post-liberalization period (1991-2005). The relevant data is collected for a 15-year period from 1991-2005 from various published sources such as World Investment Report (WIR) and Secretariat for Industrial Assistance (SIA). The data is then analyzed using simple linear regression analysis to find the impact of FDI on various variables. Growth rates are evaluated and trends are analyzed using various tools. This study establishes the relationship between the FDI inflows and exports and GDP in the Indian economy. A greater inflow of foreign capital has lead to growth in the exports of goods and services and also growth of the economy over the period of study. These results have great policy implications giving a direction to the policymakers that further liberalization attempts can be made without apprehensions about its impact on the overall economic growth and balance of trade.

Introduction
Since the end of World War II, economists have pointed to the growing interdependence among countries in the world economy. This trend of interdependence has seen exponential growth. Since late 1980s till date, the growth of FDI has been one of the most debated and significant economic developments. In Asia, FDI has increased significantly over the past two decades. However, it has been concentrated in a few countries. In the early 1990s, seven East Asian countriesChina, Korea, Singapore, Indonesia, Malaysia, Philippines and Thailandreceived more than 60% of the FDI inflows compared to the other countries in Asia. The BRIC (Brazil, Russia, India, and China) report states that India is going to be one of the most popular destinations for FDI from across the globe. However, the preliminary question is whether this inflow is going to lead to any growth in the domestic economy and exports; if yes, how much? and will it be significant enough to drive further FDI inside the economy?

Relevance of FDI
Foreign direct investment in the developing countries dates back to the 19th century. During the colonial and neocolonial period, it was concentrated in export-oriented mineral and agricultural production and in public utilities. However, there were economic and political opportunities to foreign investment in the colonial countries. There was growing opposition to
* Assistant Professor, The Icfai Business School, Mangalore, India. E-mail: [email protected] 16 The Icfai All University Journal of International Business, Vol. III, No. 4, 2008 Press. Rights Reserved. 2008 The Icfai University

investment from abroad in Canada and Australia in the 1920s and 1930s. The same was true in Europe in the 1950s when American inflows were at their peak and European outflows were still negligible. Japan simply kept foreign investors out (Billerbeck and Yasugi, 1978). In the 1950s, after the end of World War II, FDI from the industrialized countries to developing countries began to flow again. By the end of 1960s, average annual flows to developing countries, including reinvested earnings, were $3 bn. By 1975, the rate of investment accelerated and reached $10 bn (Billerbeck and Yasugi, 1978). FDI inflows more than doubled in nominal terms between 1975 and 1985, attaining a peak in 1981 and rising thereafter at an annual average rate of 43%, to reach a record high level of about $215 bn in 1990 (Bhalla, 1994). Increases in FDI inflows exceeded the growth in nominal value of world GDP and international trade, which expanded by around 3.5% and 7% respectively in 2006 (WIR, 1997).

Definition of FDI
Foreign direct investment is defined as an investment involving a long-term business relationship and reflecting a lasting interest and control of resident entity in one economy (foreign direct investor or parent enterprise) in an enterprise resident in an economy other than that of the foreign direct investor (FDI enterprise or affiliate enterprise or foreign affiliate). Foreign direct investment implies that the investor exerts a significant degree of influence on the management of the enterprise resident in the other economy. Such investment involves both the initial transactions between the two entities and subsequent transactions between them and among foreign affiliates, both incorporated and unincorporated. Foreign direct investments may be undertaken by individuals as well as business entities (WIR, 1997). The component included to account the FDI varies from country to country.

Theoretical Background
There are various theoretical foundations that discuss the FDI:

Structuralist Paradigm
Foreign investment is to be welcomed and actually encouraged through tax concessions, etc. as a source of foreign finance and technology. However, for Raul Prebisch, such investment should flow into the branches of production in which it is most needed (Hunt, 1989).

Overlapping Generations Model

The Overlapping Generations (OG) model of long run growth presents a somewhat different perspective on the effects of foreign investment. This model provides a basic lesson: foreign investment makes the future generations of the capital-importing country better off and the future generations of the capital-exporting country worse off (Bhalla, 1994).
Impact of Foreign Direct Investment in India 17

What happens if there is foreign investment? Interest rates rise in the capital-exporting country and fall in the capital-importing country. The key fact is the wages of the present generation depend on the capital stock inherited from previous generations. Since each member of the present generation earns his or her wages in the first period and retires in the second period, he or she will be made better off by a higher interest rate on savings and worse off by a lower interest rate on savings. The wage rate is fixed. Therefore, since investment lowers interest rates in the capital-importing region in the OG model, the present generation is made worse off. Interest rates rise in the capital-exporting region, therefore, the present generation in that region is better off (Roy, 1979).

OLI Paradigm
The most recent of them all is the one given by Dunning popularly known as Eclectic or OLI paradigm. It discusses about Ownership (O), Location (L), and Internalization (I) advantages of a countrys firms while differentiating along the countrys course of economic development (Dunning and Narula, 1998). According to this theory, three conditions have to be fulfilled in order for a firm to become a multinational: the Ownership (O) advantages must be such as to make it profitable for the firm to relocate abroad its own production (or at least part of it); there must be some Localization (L) advantage, typically linked to the host countrys specific characteristics; and it must be more convenient for the firm to manage its advantages Internally (I) rather than trade them through the market. This appears to be a very useful paradigm in explaining the different characteristics that need to be fulfilled for a firm to become a multinational and also helps in developing further empirical studies on this topic (Soci, 2002).

Macro Perspective
National Income (GDP) is universally employed and is generally a useful measure for economic growth. A variety of policies for promoting growth can be suggested. Let us start from a simple equation for GDP. GDP = C + I + G + (X M) where, C = Consumption I = Investment

G = Government Expenditure X = Exports

M = Imports This leads to the following alternatives (Rao, 1995). 1. Maximize C through tax reduction (supply-side economics). 2. Activate Iboth domestic and foreign.
18 The Icfai University Journal of International Business, Vol. III, No. 4, 2008

3. Stimulate GKeynesian economics (may lead to heavy budget deficits). 4. Increase XOutward looking policies (aggressive East Asian economies). 5. Contain MImport substitution (some of the third world economies including India till recently). Combination of first, second and fourth alternatives is suggested for a segmented economy to augment development (Chenery and Ahulwalia, 1974). India seems to have been following this path since mid-1980s. In the structural adjustment program, exports and foreign capital started to play a prominent role.

Review of Earlier Works

Foreign capital inflows play an important role in supplementing and complementing resources of developing countries in their efforts towards higher levels of development. The role of foreign capital has been emphasized in literature on economic development; for instance, the Gap models (Hunt, 1989) and the Kindleberger-Hymer approach to FDI. It was Abba Learner who discussed at length about the inflow of foreign capital (Lerner, 1944). The general effects of foreign investment on development received a good treatment in the works of Mac Dougall (Dougall, 1966). The work of Kemp Murray (Murray, 1960) can also be mentioned in this respect. However, the question of the possible adverse effects of foreign capital on the levels of domestic savings was first raised by Trygve Haavelmo (Haavelmo, 1963). Following Haavelmo, many evinced interest in studies on the relationship between foreign capital and economic growth in developing countries. There was a proliferation of studies on this and the works of Lee, Rana and Iwasaki in the context of Asia is important (Lee et al., 1986). One of the earliest studies on the relationship between FDI and growth is that of Papanek (Papanek, 1973). Among country-specific studies, the work of Gustav Ranis and Chi Shive on Taiwan (Ranis and Schive, 1985) is very exhaustive. In 1970, Robert Aliber raised many theoretical issues like whether FDI is a currency area or customs area phenomena (Aliber, 1970). W B Reddaways analysis (Reddaway, 1968) of the influence of FDI on Balance of Payments (BOP) is a landmark study in the literature on FDI. A more general theoryoriginally propounded in a thesis at MIT by Stephen Hymeris that direct investment belongs more to the theory of industrial organization than to the theory of international capital movements. Hymers work emphasizes that firms engaged in direct investment have monopolistic elements and the perfect competition model is not relevant. To the literature on FDI, the greatest contribution was made by Charles, P Kindleberger (Kindleberger, 1958 and 1968). His influence on subsequent works is so profound that his analysis and approach to FDI along with that of Stephen Hymer is well-known as Kindleberger-Hymer Approach.
Impact of Foreign Direct Investment in India 19

However, there are specific studies that help in understanding the FDI drivers at a regional level and also have direct use in policymaking (Na and Lightfoot, 2006). Others talk about development of successful FDI strategies at national level (Musila and Sigue Simon, 2006). Some simplistic papers look at just the trends of FDI in various countrieswhat they expect to measure is the general perspective without exploring in detail what are the implications of these investments on the national growth and other parameters. There are studies pertaining to firm-level analysis of the determinants (Pantelidis and Dimitrios, 2005) and one paper deals with specific determinants of US FDI in India (Balasundram and Chatterjee, 1998).

Objectives of the Present Study

The main objectives of the present work are:

To examine trends in FDI in India; and To analyze the impact of FDI on exports and GDP. Methodology
Period of Study
The period of analysis for the present study is 1986-87 to 2005-06. Depending on the availability of the data, the analysis is confined to this broad period. However, the focus of analysis is mostly on post-liberalization period of 1991-2005 and 2005-06, as FDI data is consistently available since this period.

Hypothesis
One of the benefits of FDI is that it is likely to transfer modern technology to the domestic economy. As a result, the products produced in the domestic economy would become internationally competitive. The inflow of FDI is likely to promote the exports. Thus, both GDP and exports are expected to be positively influenced by FDI.

Sources of Data
The data for this work are taken from a variety of sources. The publications of SIA of Ministry of Industry, Government of India are the main sources of information for data on FDI flows, country-wise break-up and sector-wise break-up. The RBI online database on the Indian economy is another major source of data. Data on aggregate FDI is taken from World Investment Report of United Nations and Reserve Bank of India (RBI) Annual Report.

Techniques of Estimation
Simple techniques like percentages and growth rates are employed to analyze data. However, for capturing the impact of FDI on exports, imports, and GDP, the paper has used mean, standard deviation, and simple regression analysis. Y = a + bX
20 The Icfai University Journal of International Business, Vol. III, No. 4, 2008

where, Y = Dependent variable. a = Intercept of the line on y-axis. b = Regression coefficient X = Independent variable. Thus, the following three simple linear regression equations would be analyzed to study the impact of FDI on exports, imports and GDP. X = a1 + b1 FDI M = a2 + b2 FDI Y = a3 + b3 FDI where, X = Exports M = Imports Y = GDP And a and b are the coefficients of FDI. All the related statistics are estimated for analysis. ...(1) ...(2) ...(3)

Analysis
In this section a detailed analysis of the impact of FDI on exports and GDP along with the analysis of trends of FDI in India is attempted.

Analysis of Trends
Foreign investment plays an important part in economic development and is often an essential element in economic transformation of developing countries. As can be seen from Table 1, the flow of FDI across the world has seen a tremendous growth over the period of 20 years. This reflects the fact that most economies are moving from relatively closed economies to open economies. Also, it is positive to notice that the inflows are increasing in the developing countries over the period. The share of developed countries was almost three-fourth in 1985, and it remains at 60% of the world flows in 2005. Europe and the US dominated the scenario for a very long time; but their share was on a decline in the recent past. On the other hand, the share of developing economies has seen a gradual and healthy increase over the period; it increased from a meager one-fourth to a dominating 36%. However, what needs to be noted here is that there is no single country which attracts as big an investment as developed economies do. However, Asian economies are doing better than Latin American countries and Africa.
Impact of Foreign Direct Investment in India 21

22

Table 1: Inward FDI Flows, by Host Region and Economy, 1985-2005

1995 1099919.16 851182.62 77.39 522511.80 47.50 87978.94 8.00 308119.39 28.01 283376.00 25.76 20551.43 1.87 238266.00 21.66 12454.91 1.13 31271.40 2.22 266822.92 18.93 9577.33 0.68 22.28 314007.00 159461.00 19.16 19004.88 2.28 221447.25 26.61 19894.32 2.39 27.02 22.48 380798.00 187124.00 96612.50 15.64 74457.00 12.05 30457.35 4.93 163582.61 26.48 12999.27 2.10 8.43 6.32 3.89 118764.29 52623.24 24029.45 51.19 47.24 50.86 49.13 16777.91 3.01 60761.00 10.89 53146.00 9.53 23682.35 4.25 175138.03 31.39 18512.52 3.32 721613.84 393142.90 314168.02 274095.48 80.43 72.01 71.43 64.27 1133683.25 599271.78 441237.87 358538.84 396144.95 55.74 217695.91 30.63 56214.07 7.91 123910.40 17.43 122377.00 17.22 54538.63 7.67 275032.42 38.70 17198.74 2.42 1409567.77 832247.63 617731.56 557869.01 710754.69 1997 1998 1999 2000 2001 2002 2003 2004 2005

(in US$ mn)

1985

1990

1991

World

57959.41 201613.85 154801.20 340336.10 489709.18 712031.96

916276.63 542311.83 59.19 433628.10 47.33 164529.69 17.96 133264.90 14.54 99443.00 10.85 -24581.17 2.68 334285.44 36.48 30671.96 3.35

Developed Economies 64.36 58.05 71.09

42687.19 164807.82 112128.02 219030.98 284252.11 506205.77

% of World

73.65

81.74

72.43

Europe 39.27 19969.45 5.87 68026.77 114925.02 197243.32 19.99 58772.00 103398.00 174434.00 17.27 17353.65 5.10 3.16 1.73 15494.36 12298.96 21.11 24.50 23.47 27.70 6.78 10.44 33226.59 74321.33 31.41 41.66

16706.33

97043.84

79225.38 133650.56 153832.74 296663.49

% of World

28.82

48.13

51.18

United Kingdom 9.59

5668.30

30461.12

14846.17

% of World

9.78

15.11

North America

21862.41

56004.28

25679.96

% of World

37.72

27.78

16.59

US

20490.00

48422.00

22799.00

% of World

35.35

24.02

14.73

Other Developed Economies 4.67

4118.44

11759.71

7222.68

% of World

7.11

5.83

Developing Economies 34.23 5641.80 1.66 2.24 1.30 10948.26 9279.89 39.48 27.41

15257.23

36731.12

42438.66 116502.03 193355.99 195174.25

% of World

26.32

18.22

27.41

Africa 2.29

2443.32

2825.62

3539.91

% of World

4.22

1.40

Latin America and the Caribbean 30250.82 76259.00 9.22 8.89 15.57

7302.60

10566.92

14276.25

90311.63

114107.95

108992.60

89397.04

54339.62

46136.92

100505.86

103662.63

% of World

12.60

5.24

12.68

10.37

7.73

10.74

8.80

8.27

14.14

11.31

The Icfai University Journal of International Business, Vol. III, No. 4, 2008

(Contd...)

Table 1: Inward FDI Flows, by Host Region and Economy, 1985-2005

Source: World Investment Report 2006 (percentages estimated).

111703.14

111285.32

10470.54

FDI is also seen to increase as a percentage of the GDP of the economies. On the whole, FDI forms around 22% of the GDP of all the economies of the world. As shown in Table 2, the developed countries are moving closely with the world average. Whereas, the developing economies are improving very fast and their share is steady in the recent years. United Kingdom among the developed economies and Hong Kong, China in the developing economies are the top destinations of FDI (Table 2). The economy of Hong Kong is overwhelmingly attracting foreign investments followed by Singapore and Vietnam in South-East Asia. India is slowly picking up the speed as far as FDI is concerned; it started with a meager 0.33% and is presently at around 6%. Among the developing economies, all the continents are faring equally as far as this parameter is concerned.

(...contd)

(in US$ mn)

199950.85

199553.64

39679.36

21.82

21.78

2005

157327.82

156622.32

39577.32

22.14

22.04

2004

110488.58

110136.74

24192.15

19.81

19.74

2003

96243.72

96124.85

12911.09

15.58

15.56

2002

112155.89

112044.89

11528.61

13.48

13.46

2001

148252.99

147992.76

9061.61

10.52

10.50

2000

10.16

10.12

1999

0.95

0.64

1.39

2.09

4.34

5.57

4.33

95582.73

95249.46

10651.94

13.42

13.38

1998

1.50

Asian Perspective
Foreign capital is treated as a resource gap-filling factor in the context of capital scarcity in the developing countries. In developing countries, FDI is now the principal source of foreign capital. There are good reasons to believe that FDI is preferred to other types of flows. One convincing argument is that FDI consists of a package of capital, technology and market access which tends to go to those manufacturing sectors which enjoy actual or potential comparative advantage (Edward, 1992). The inflow of FDI would give rise to economies of scale and higher productivity and create linkage effects in these sectors (Edward, 1992). With the inflow of FDI, profitability and outward remittance of profits and dividends move in close tandem with
23

80609.40 106148.73

79918.01 105772.63

12101.08

21.68

21.60

1997

4803.09

23.69

23.48

1995

24622.50

24154.07

234.51

15.91

15.60

1991

23338.58

22642.36

11.58

11.23

74.91

1990

5511.30

5421.41

15.00

9.51

9.35

1985

South-East Europe and the Commonwealth of Independent States (CIS)

% of World

% of World

Impact of Foreign Direct Investment in India

% of World

Asia and Oceania

Asia

0.03

0.04

0.15

1.41

2.47

24
1985 6.95 6.44 9.97 14.06 5.49 4.41 2.34 8.93 10.45 9.26 8.31 8.26 11.32 8.24 2.04 75.24 2.24 0.91 0.33 3.01 8.84 9.95 7.27 9.36 10.16 1.54 2.11 2.54 3.27 4.14 2.54 12.74 12.24 1.83 2.06 2.74 13.36 6.57 9.80 50.07 51.52 143.59 136.21 10.31 5.56 4.70 3.33 11.79 12.73 14.44 15.69 17.14 18.51 12.26 13.19 23.27 25.47 34.04 18.78 252.29 9.98 6.47 4.53 3.43 10.18 14.09 8.02 7.80 8.31 8.99 8.88 12.12 13.11 18.66 21.95 26.57 12.15 13.14 18.67 21.95 26.56 26.51 26.51 8.52 33.98 17.89 275.44 9.83 7.32 4.66 3.77 9.78 9.80 11.05 12.68 15.47 18.66 24.29 25.84 16.72 16.43 17.56 19.32 26.98 25.99 26.56 31.82 26.37 26.37 9.66 33.34 17.28 257.53 9.45 8.58 4.78 4.20 8.25 9.71 12.22 13.28 17.53 20.57 25.91 26.26 28.07 2.91 3.53 3.45 3.93 4.35 3.94 4.40 7.29 7.70 8.26 8.95 10.37 12.87 13.34 12.89 6.02 26.74 29.82 33.99 23.30 23.29 9.22 27.64 17.04 210.25 8.58 8.11 5.45 5.00 8.29 10.44 8.31 8.74 9.21 9.91 11.46 14.02 14.45 14.07 17.62 19.22 19.07 23.73 26.36 30.50 35.40 33.44 33.72 14.34 12.88 7.29 27.77 30.40 36.78 23.88 23.88 11.82 28.09 16.12 243.39 9.17 7.94 5.62 5.18 8.48 10.72 13.13 13.85 15.22 19.07 20.64 26.38 28.44 31.83 33.89 8.92 9.67 10.36 12.47 13.54 16.23 17.57 19.36 21.09 9.40 10.26 11.76 14.01 15.95 18.35 19.80 20.92 22.50 23.30 22.05 34.94 33.32 14.51 13.03 8.15 27.93 29.94 37.64 23.88 23.89 11.38 28.34 14.88 275.21 10.09 8.24 6.04 5.68 8.77 11.31 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 22.67 21.40 33.48 37.10 14.56 13.02 7.32 27.00 28.20 36.65 23.15 23.15 11.88 26.99 14.29 299.88 10.70 7.97 6.23 5.84 8.78 10.41

Table 2: Inward FDI Stock as a Percentage of Gross Domestic Product, by Host Region and Economy, 1985-2005

Region/Economy

World

Developed Economies

Europe

United Kingdom

North America

United States

Other Developed Countries

Developing Economies

Africa

Latin America and the Caribbean

Asia and Oceania

Asia

West Asia

East Asia

China

Hong Kong, China

Korea, Democratic Peoples Republic of

Korea, Republic of

South Asia

India

Pakistan

Sri Lanka

The Icfai University Journal of International Business, Vol. III, No. 4, 2008

(Contd...)

(...contd)

2005

158.57

7.65

33.50

43.20

36.52

61.17

21.22

14.37

the performance of the economy and the balance of payments (Siow, 1993). Coming to the scenario in Asia, a few economies are attracting heavy inflows and others remain low players. As can be seen from Table 3, Asia contributes around one-fifth of the worlds FDI. South, East and South-East Asia contribute almost four-fifth of the total inflows directed at this region. However, there is a huge skewness in favor of some economies in East Asia, with China dominating the scene among all the economies. The internal policy framework and the conducive environment for the foreign investors have been very fruitful over the period for China. South Asia is among the deprived region in entire Asia, with India contributing only around 3% to the regions inflow in the year 2005. Singapore and Thailand are among other economies in this region that attract a large inflow of direct investments. Looking again at the world scenario, we can see in Table 4 the trends as far as sectoral inflows of FDI across the developed and developing economies are concerned. There is a clear indication that most FDI flows are in the manufacturing sector, and the service sector has picked up in the later years. Most economies still have a highly protected agricultural sector and low FDI inflows also show the same trend (Table 4).

7.05

156.19

14.92

32.95

44.16

37.19

63.54 70.44 74.31 70.43 66.07

Table 2: Inward FDI Stock as a Percentage of Gross Domestic Product, by Host Region and Economy, 1985-2005

4.96

157.55

43.84

39.70

14.87

33.96

4.11

153.20

43.65

39.45

15.68

30.09

2001

10.63

139.95

44.63

38.60

14.95

28.79

16.50

121.67

45.42

58.40

16.87

24.37

15.87 0.00 1.31 1.97

Source: World Investment Report 2006.

2000

20.95

124.23

45.98

61.86

14.98

25.37

63.39 57.51 49.48 30.55 34.48 40.82

1999

32.68

105.83

47.22

62.44

14.28

22.78

1998

27.47

14.57

42.28

78.39

10.23

8.84

1996

1997

11.77

24.62

35.72

81.41

1995

22.63

32.34

10.17

78.21

1985

13.46

23.68

60.03

6.71

8.46

5.14

10.53

8.21

10.83

8.89

3.24

5.40

8.64

19.49

22.15

2002

24.45

2003

23.80

2004

FDI in India
South-East Europe and the Commonwealth of Independent States (CIS)

In this section a detailed analysis of the FDI in India is presented on the basis of approvals, actual flows, country and sector-wise breakups, state-wise break-ups and also on the components of FDI. Considerable interest is being shown in measures that might promote private foreign investment and allow it to make a greater contribution to development (Bhalla, 1994); this fact is being proved here in the analysis.
25

Region/Economy

South-East Asia

Philippines

Singapore

Indonesia

Thailand

Malaysia

Impact of Foreign Direct Investment in India

Vietnam

26

Table 3: Inward FDI Flows, by Host Region and Economy, 1985-2005

1995 95249.46 111285.32 21.60 4246.19 4.01 91713.71 96.29 65548.87 68.82 45462.75 47.73 14764.95 5067.50 9630.70 8650.60 24578.09 61924.06 23776.53 3866.30 36.23 27.51 41.84 40318.71 40714.81 46877.59 69.62 78.57 70.35 70.07 52742.86 54.87 9681.88 3042.80 77478.44 116275.40 78828.59 67350.24 98.38 97.62 93.56 93.74 88.82 72173.98 65.53 53505.00 48.58 13623.58 3891.90 109485.82 144474.49 104825.18 90106.08 97823.21 3.71 1.62 2.38 6.44 6.26 11.18 3535.75 1799.49 3518.27 7219.71 6018.77 12313.53 18580.96 11.86 138041.36 88.14 105074.18 67.09 60630.00 38.71 34031.70 7726.90 13.38 10.12 10.50 13.46 15.56 19.74 22.04 147992.76 112044.89 96124.85 110136.74 156622.32 199553.64 1997 1998 1999 2000 2001 2002 2003 2004 2005

(in US$ mn)

Region

1985

1990

1991

Asia5421.41 15.60 2495.21 3.12 77422.80 101526.44 96.88 46551.57 58.25 37520.53 46.95 6213.36 1246.70 2641.10 11368.15 42.79 45257.04 58.47 61848.97 95.99 23.48

22642.36

24154.07

79918.01 105772.63

% of World

9.35

11.23

21.78 34460.75 17.27 165092.89 82.73 118192.28 59.23 72406.00 36.28 35897.46 7198.00

West Asia 8.88

681.56

455.69

2145.33

% of Asia

12.57

2.01

South, East and South-East Asia 91.12

4739.85

22186.67

22008.74

% of Asia

87.43

97.99

East Asia 32.89

2248.30

8791.07

7944.11

% of Asia

41.47

38.83

China 18.08

1956.00

3487.11

4366.34

% of Asia

36.08

15.40

Hong Kong, China

267.22

3275.07

1020.86

Korea, Republic of

217.90

759.20

1130.30

Taiwan Province of China 1559.00 2717.18 3.40 1.90 2151.00 2.69 492.10 65.00 28154.05 35.23 34306.91 32.43 433.00 711.00 3.42 2.76 506.00 150.00 22275.84 23.39 3619.00 2633.00 575.25 576.46 5.08 4.08 2.91 309.12 2168.00 1.95 532.00 201.00 28765.55 25.85 5370.56 3888.99 3241.83 2248.00 222.00 2926.00

342.00

1330.00

1271.00

4928.00 4658.30 3.15 578.70 3585.00 2.42 309.00 172.95 23540.79 15.91

4109.00 6414.86 5.73 354.50 5472.00 4.88 383.00 171.79 19581.72 17.48

1445.00 6982.13 7.26 328.30 5627.00 5.85 823.00 196.50 15773.71 16.41

453.00 5729.27 5.20 350.20 4585.00 4.16 534.00 228.72 19919.96 18.09

1898.00 7301.26 4.66 460.40 5474.00 3.50 1118.00 233.00 25665.93 16.39

1625.00 9765.05 4.89 692.00 6598.00 3.31 2183.00 272.00 37135.56 18.61

South Asia 1.76 1.39 75.00 0.31

173.13

574.75

424.35

% of Asia

3.19

2.54

Bangladesh

6.66

3.24

India

106.09

236.69

% of Asia

1.96

1.05

Pakistan 67.00

47.44

278.33

271.92

Sri Lanka

24.40

43.35

South-East Asia 56.47

2318.42

12820.85

13640.28

% of Asia

42.76

56.62

The Icfai University Journal of International Business, Vol. III, No. 4, 2008

(Contd...)

(...contd)

Table 3: Inward FDI Flows, by Host Region and Economy, 1985-2005

1995 4346.00 5815.00 1459.00 11535.31 14.43 2070.00 Source: World Investment Report 2006 (percentages estimated). 3882.00 7492.00 6091.00 3350.00 3886.00 947.00 13.00 7.68 14.90 11.14 13.97 7.63 9.42 1952.00 13752.67 7313.87 16577.91 16484.49 15648.87 7338.08 10376.37 1249.00 1752.00 1247.00 2240.00 195.00 1542.00 491.00 6323.00 2714.00 3895.26 3787.63 553.95 3203.42 2473.16 4624.21 688.00 14820.11 9.46 1414.00 4678.00 241.00 1865.00 4550.00 2978.43 145.09 596.92 1896.00 1997 1998 1999 2000 2001 2002 2003 2004

(in US$ mn) 2005 5260.00 3967.12 1132.00 20082.73 10.06 3687.48

Region

1985

1990

1991

Indonesia

310.00

1092.00

1482.00

Malaysia

694.71

2611.00

4043.00

Philippines

105.00

550.00

556.00

Singapore

1046.75

5574.75

4887.09

% of Asia

19.31

24.62

20.23

Thailand

159.99

2575.00

2049.00

Table 4: Estimated World Inward FDI Flows, by Sector and Industry, 1989-1991 and 2002-2004
(in mn $) Developed Countries 9103 12,443 603 11,804 37 64,147 7,304 2,361 2,245 870 687 2,214 12,311 6 9,072 37 47,693 4,846 2,113 2,006 870 997 10,097 309 239 16,453 2,459 248 2,732 608 131 36,493 226 93,337 10,874 2,236 425 2,531 6,189 17,275 Economies 3,340 World Countries 36,398 1989-1991 Developing Developed 2002-2004 Developing South-East Economies 16,328 2,341 13,987 84,957 5,737 1,334 298 140 70 6,716 Europe and CIS 4,909 132 4,777 0 6648 794 46 396 1 532 230

Impact of Foreign Direct Investment in India

World 57,635 2,604 55,257 226 184,943 17,405 3,616 268 2,672 6,651 24,221

Sector/Industry

Primary Agriculture, hunting, forestry

and fisheries Mining, quarrying and pertroleum Unspecified primary

Manufacturing Food, beverages and tobacco Textiles, clothing and leather

Wood and wood products Publishing, printing and reproduction of recorded media

Coke, petroleum products and nuclear fuel Chemicals and chemical products

27

(Contd...)

28
1989-1991 Developed Developing Countries Economies World 964 1,523 5,247 7,779 4,498 837 3,873 3,137 11,886 94,909 2,011 1,043 18,953 4,515 2,874 32,761 18,792 2,317 11 90 2,283 7,875 1,385 114 11,925
Source: UNCTAD.

(...contd) (in mn $)

Table 4: Estimated World Inward FDI Flows, by Sector and Industry, 1989-1991 and 2002-2004

Sector/Industry Developed Countries 2,744 3,672 15,145 9,970 940 1,233 5,910 5,464 12,045 336,513 21,397 3,119 31,299 1,249 30,710 112,664 90,462 3,103 3 296 1,318 34,534 6,952 1,402 17,618 2,130 1,374 54,252 92,418 5,970 2,103 16,346 1,715 11,303 19,663 26,143 40 212 4,295 2,250 2,378 9,189 6,153 4,319 64 247 611 1,653 3 883 770 607 23 26 0 8 2,331 7,243 43 278 2,585 131 822 952 1,637 161 3 22 19 3 587 11 738 933 1,298 3,972 4,851 3,530 837 3,571 2,336 7,431 83,807 827 481 16,474 3,596 1,681 30,353 17,288 2,317 7 67 2,274 7,328 913 114 8,086 547 472 3,839 4 23 2,408 1,504 2,479 919 1,193 11,302 1,183 562 301 801 4,455 2,929 967 31 225 1,275

2002-2004 Developing South-East Economies Europe and CIS

World 2,994 5,166 17,567 16,730 5,282 1,144 8,040 6,846 68,628 436,174 27,411 5,500 50,229 3,095 42,835 133,279 118,242 3,264 46 62 5,632 36,787 9,917 1,414 27,545

Rubber and plastic products Non-metallic mineral products Metals and metal products

Machinery and equipment Electrical and electronic equipment Precision instruments

Motor vehicles and other transport equipment Other manufacturing Unspecified secondary

Services Electricity, gas and water Construction

Trade Hotels and restaurants Transport, storage and communications

Finance Business activities Public administration and defence

Education Health and social services Community, social and personal service activities

The Icfai University Journal of International Business, Vol. III, No. 4, 2008

Other services Unspecified tertiary Private buying and selling of property Unspecified

As in all colonial countries there was a widespread animosity towards foreign capital in India (Chandra, 1991). Since 1980s, foreign capital was welcomed into hitherto closed areas and its inflow multiplied manifold. Outstanding FDI as estimated by RBI, in Indias commercial and industrial sector increased at a very slow pace from Rs. 387 cr in 1955 to Rs. 973 cr in 1975 falling marginally to Rs. 933 cr in 1980 (Chandra, 1991). The series of adjustments in industrial policy in the 1980s and opening the doors wider for FDI undoubtedly helped some scaling up of the inflow of foreign private capital from the insignificant Rs. 10 cr per annum in 1970s to annual average of Rs. 100 cr in the first half of the1980s and about Rs. 200 cr per annum in the second half (Mehta, 1991). It is realized that FDI has proved to be an even more powerful channel for the transfer of knowledge and export capability, and India should not lag behind other Asian countries in reaping the benefits of FDI, especially for the infrastructure and exports (Economic Survey,1993-94). As a result of open policy relating to FDI, foreign interest in Indian economy got stimulated.

Approvals vs. Actual Inflows

Table 5 depicts the detailed account of FDI actual inflow against the amount that was approved. It can be observed that there is a large gap between the two, mainly attributed to the procedural delays at the initial phase of liberalization. This gap seems to have faded in the later phases Table 5: Year-Wise FDI Approvals and Inflows (Net of ADRs/GDRs) (from August 1991 to October 2006)
Amount in Rs. cr Year (Jan.-Dec.) 1991 (Aug.-Dec.) 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 (Jan.-Oct.) Total FDI Approvals 505 3,818 8,862 8,955 30,882 30,886 50,389 27,590 25,140 17,237 20,940 11,058 5,416 8,741 7,900 10,646 2,68,965 FDI Inflows 353 691 1,862 3,112 6,485 8,752 12,990 13,269 10,167 12,354 16,778 18,196 11,617 17,266 19,299 36,092 1,89,283 206 1459 2,891 2,855 9,835 8,981 14,048 6,985 5,986 4,009 4,653 2,304 1,178 1,900 1,775 2,343 71,407 Amount in US$ mn FDI Approvals FDI Inflows 144 264 608 992 2,065 2,545 3,621 3,359 2,421 2,873 3,728 3,791 2,526 3,755 4,360 7,930 44,983

Note: a. FDI approvals data from the month of October 2004 are not being maintained by RBI, Mumbai. b. FDI inflow includes FIPB/SIA route, RBIs automatic route, amount on account of acquisition of existing shares by foreign investors, RBIs NRI Schemes, stock swapped and advance amount pending allotment of shares. Source: SIA, DIPP, Ministry of Commerce and Industry.

Impact of Foreign Direct Investment in India

29

30

where, foreign investment is being attracted to a large extent by removing all the administrative hurdles and also providing a conducive economic environment within the country.

Sector-Wise Analysis

Country-Wise Analysis

S. No. 308,226.14 131,648.83 69,320.44 45,002.48 54,922.31 39,842.10 21,277.30 24,307.05 23,699.89 14,120.56 72,780.18 55,030.92 840 84,269.48 1,050,091.58 1,642.51 1,128.62 4,289.59 0 18,807.56 1,725.00 0 116,171.70 1,680.46 3,624.98 8,628.97 11,618.83 22,779.26 6,585.36 7,274.88 2,855.01 5,289.30 1,227.14 3,137.05 0 24,851.48 0 0 4,343.86 5,337.44 19,040.00 29,791.68 25,859.33 46,162.14 94,078.28 20,700.41 7,449.55 5,277.35 9,578.08 3,683.13 14,168.96 1,288.29 2,943.09 3,689.39 0 0 283.71 0 172,665.21 192,990.87

10.

11.

12.

13.

14.

The FDI in India is majorly concentrated in the electrical equipment industry, which
1991-2002 (Aug.-Dec.) 2003 (Jan.-Dec.) 2004 (Jan.-Dec.) 2005 (Jan.-Dec.) 2006 (Jan.-Sep.) 146,632.48 24,179.08 4,648.43 4,747.90 8,187.49 12,529.23 26,224.54 2,011.09 1,728.19 2,704.36 0 0 0 0 283,743.30 Cumulative Total (in Rs.) (in US$) 620,958.35 14,328.84 225,359.99 91,099.71 89,425.81 87,902.20 66,954.33 66,206.28 34,538.24 30,726.94 27,940.96 72,780.18 98,689.96 2,848.71 84,269.48 1,815,662.66 5,444.55 2,162.78 2,090.81 2,092.50 1,619.73 1,531.92 817.07 786.67 673.06 1,848.86 2,178.72 61.23 2,509.86 43,284.10
Source: SIA Newsletter, DIPP, Ministry of Commerce and Industry.

This shows that there are large number of small investments flowing in rather than small number of large investments. Figure 1 is a clear indication of the above statement. The policy initiatives have to be taken up to boost large investors into the country.

Table 6: Statement on Country-Wise/Year-Wise FDI Inflows (from August 1991 to September 2006)

The analysis of FDI on the basis of country of origin shows interesting results. Most of the developed economies are seen to express their interest in investing in India. Tax-Haven Mauritius is the favorite route of most investors. As seen in Table 6, this country alone contributes to onethird of all our inflows. The US is the second highest contributor having a share of around 12%. All the other economies are meager contributors with Singapore and Switzerland contributing only to the extent of 3% and 1% respectively.

(Amount in Rs. mn)

Country

1.

Mauritius

2.

USA

3.

Japan

4.

The Netherlands

5.

UK

6.

Germany

7.

Singapore

8.

France

9.

Korea (South)

Switzerland

Acquisition of Existing Shares (from 1996 to 1999)

Advance of Inflows (from1999 to 2004)

Stock Swapped

RBIs NRI Schemes

The Icfai University Journal of International Business, Vol. III, No. 4, 2008

Grand Total

Figure 1: Share of Top Five Countries in FDI Inflows (Cumulative from April 2006 to September 2006)

17% 2% 3%

Mauritius Singapore USA UK

9% 11% 58%
Source: Reserve Bank of India.

The Netherlands Others

contributes to around 14% of the total inflows. This is followed by the financial and nonfinancial services contributing around 10%. As seen in Table 7, most of the inflows among the top 10 industries are towards the service sector. Food-processing industry and pharmaceutical industry would be the industries where FDI would largely be flowing in future. Figure 2 gives a summary of the FDI inflows for 2006 reflecting the trend in the country towards more and more service sectors opening up for foreign investment and also proving to be one of the favorite destinations of investors. Figure 2: Sector-Wise Distribution of Top Five FDI Inflows (Cumulative from April 2006 to September 2006)
34%

30%

Services Sector Electrical Equipments (incl. S/W and Elec.) Telecommunications Transportation Industry

3% 6% 9% 18%

Fuels (Power and Oil Refinery) Others

Source: Reserve Bank of India.

State-Wise Analysis
Maharashtra has been a major FDI destination among all the states in India. Table 8 depicts the top five states in India, which are attracting most of the investment. Naturally, these states
Impact of Foreign Direct Investment in India 31

32
1991-2002 (Aug.-Dec.) 110,908.65 13,550.09 39,666.61 45,938.44 63,042.10 273,105.89 2003 (Jan.-Dec.) 2004 (Jan.-Dec.) 2005 (Jan.-Dec.) 2006 (Jan.-Sep.) Cumulative Total (in Rs.) (in US$) 6,271.88 65,938.62 98,994.43 98,763.48 89,762.37 53,993.62 38,228.38 16,893.94 10,590.68 12,166.66 130,010.60 72,780.18 55,030.92 840 84,269.48 1,050,091.75 0 18,807.56 1,725.00 0 116,172.60 14,568.58 440.4 7.3 13,400.28 0 24,851.48 0 0 172,665.19 1,454.52 8,583.79 2,793.28 15,711.08 3,076.28 3,690.18 2,849.05 8,677.14 9,044.68 1,782.91 5,107.25 6,321.99 19,698.17 17,567.60 0 0 283.71 0 192,990.87 7,418.51 7,159.79 2,765.05 15,133.84 8,063.68 9,659.22 7,272.59 6,087.84 9,639.13 39,722.26 13,403.52 8,972.42 15,627.48 1,745.95 4,802.86 6,324.84 960.04 34,961.65 0 0 0 0 283,743.30 13,903.59 11,455.83 31,445.14 74,849.74 197,592.92 161,716.24 145,023.74 116,078.14 90,191.97 48,523.72 45,308.40 33,275.81 33,272.56 210,508.70 72,780.18 98,689.96 2,848.71 84,269.48 1,815,663.70 4,599.77 3,776.12 3,436.37 2,719.70 2,237.58 1,211.19 1,054.97 765.8 767.47 4,933.60 1,848.86 2,178.72 61.23 2,509.86 43,284.12 Source: SIA Newsletter, DIPP, Ministry of Commerce and Industry.

Table 7: Statement on Sector-Wise/Year-Wise FDI Inflows (from August 1991 to September 2006)
(Amount in Rs. mn)

S. No.

Sector

1.

Electrical Equipments (including

Computer Software and Electronics)

2.

Services Sector (Financial and

Non-Financial)

3.

Telecommunications

4.

Transportation Industry

5.

Fuels (Power and Oil Refinery)

6.

Chemicals (other than Fertilizers)

7.

Food Processing Industries

8.

Drugs and Pharmaceuticals

9.

Metallurgical Industries

10.

Cement and Gypsum Products

11.

Miscellaneous Industries

12.

Acquisition of Existing Shares

(from 1996 to 1999)

13.

Advance of Inflows (from 1999 to 2004)

14.

Stock Swapped

15.

RBIs NRI Schemes

The Icfai University Journal of International Business, Vol. III, No. 4, 2008

Grand Total

Table 8: Share of Top Five States Attracting FDI Approvals (January 1991 to March 2004)
Rank 1 2 3 4 5 Name of the State Maharashtra Delhi Tamil Nadu Karnataka Gujarat No. of FDI Approvals Total Tech. Financial 3,508 2,334 1,994 1,973 648 Amount of FDI Rs. in cr 51,114.68 35,250.74 25,071.77 24,138.44 18,837.30 US$ in bn 13.18 9.78 6.52 6.15 4.81 Percentage with Total FDI Approved 17.48 12.06 8.58 8.26 6.44

4,816 1,308 2,638 2,607 2,467 1,204 304 613 494 556

Source: Economic Survey 2003-04.

also happen to be among the most industrialized states in our country. So industrialization leads to further industrialization. Maharashtra attracts most of the manufacturing FDI, whereas Delhi and Karnataka attracts the FDI in service sector.

Components of FDI
As can be observed from Table 9, most of the investment flows are fresh equity investments. India does not have full convertibility on capital account as of now; this brings most of the earnings reinvested in the economy. The other capital which includes the remittance towards recouping the losses of branches/subsidiaries, etc. forms a minor part of the total inflow. Table 9: Components of FDI in India
Year 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 Direct Foreign Investment 97 129 315 586 1,314 2,144 2,821 3,557 2,462 2,155 4,029 6,130 5,035 4,322 5,652 7,751 Equity NA NA NA NA NA NA NA NA NA NA 2,399 4,096 2,825 2,229 3,779 5,820 Reinvested Earnings NA NA NA NA NA NA NA NA NA NA 1,352 1,644 1,832 1,460 1,904 1,676
(in US$ mn)

Other Capital NA NA NA NA NA NA NA NA NA NA 280 390 438 633 369 256

Source: RBI online database on the Indian economy.

Impact of Foreign Direct Investment in India

33

Skewness

1.25

1.44

0.32

0.23

Analysis of Relation Between FDI, Exports, Imports and GDP in India (1985-2005)
Undoubtedly, the role of FDI in the Indian economy has considerably increased. The most important factors for this change are liberalization of regulatory framework and privatization programs since 1991. In other words, India adopted open door policy with regard to FDI since late 1980s. The theoretical support for FDI is that it will contribute to increasing exports and higher growth of GDP. Flow of investment in the short run may also increase imports; however, if this situation continues in the long run it may have a detrimental impact on the growth and national income if increase in exports does not match with the increase in imports. It would be interesting to analyze the impact of FDI on exports and GDP. With this intention, simple regression technique has been used to capture the impact of FDI on exports, imports and GDP. FDI has been used as an independent variable whereas exports, imports and GDP are used as dependent variables.
Source: Estimated.

72801337406.36 269817.23 1529408.00

352740651.00

625342117.00

Variance

18781.39

25006.84

Std. Dev.

85206.00

Table 10: Descriptive Statistics

118908.00

Maximum

6130.00

2021.32

4085729.70

692871.00

Minimum

As depicted in Table 10, the imports have a higher mean, standard deviation and also a higher skewness and the exports are lower than the imports showing the steady trade deficit that was existing in Indias foreign trade. The growth of FDI in India was very low in the initial years of liberalization. However, in the later years with the relaxation of processes for entry and fast track clearances and widespread opening of FDI both in terms of cap and sectors showed a marked improvement in the inflows. The average does not seem impressive due to the above fact. To analyze the regression results it is important to see the impact of the most sought after FDI in the economy. As can be seen in Table 11, the coefficient of determination (R2) between the FDI and exports is very high and also significant. The interpretation can be that on an average, US$1 mn inflow of FDI in the economy results in around US$7.8 mn exports in the economy. The variation in exports due to changes in FDI can be explained to the extent of 72%. All the estimated coefficients are statistically significant and have an acceptable standard error. The coefficient explaining variation in exports is significant and positive indicating that the FDI has in fact promoted exports during the period of study.

18266.00

38302.27

50682.27

21064.00

1040940.73 15614111.00 GDP (Rs. cr)

Mean

760234.00

574534.00

Imports (US$ mn)

Exports (US$ mn)

34

FDI (US$ mn)

40748.00

Sum

2716.53

97.00

The Icfai University Journal of International Business, Vol. III, No. 4, 2008

Table 11: Regression Analysis

Constant Exports Imports GDP 16848.889 23059.220 707486.899 B Coefficient 7.897 10.168 122.75 Std. Error 1.358 1.954 14.547
Source: Estimated.

t 5.816 5.203 8.438

sig. 0.000 0.000 0.000

R 0.850 0.822 0.920

R2 0.722 0.676 0.846

In case of imports, as expected, the coefficient has a positive value and is statistically significant showing that there is an increase in imports along with an increase in the exports with every flow of FDI in the economy. The results of regression show that with every million US$ increase in the FDI, there is an increase of imports to the extent of US$10 mn. This indicates two things: (i) imports are increasing with FDI and (ii) increase in imports are higher than increase in exports with every dollar flow of FDI in the country. However, the coefficient of determination is only 67% indicating that there are other factors besides the FDI which explain the changes in imports in the Indian economy over the period of study. The main aim of all the economies to attract FDI is to see that the economic growth takes place and the people in the economy are better off than before. The closest indicator of economic growth is the GDP of the economy. So by analyzing the impact of FDI on GDP, we explain whether the objective has been achieved or not. As can be seen in the table, the regression results show a positive and statistically significant relationship between GDP and FDI in the Indian economy during the period of study. There is an increase in the GDP variable due to FDI inflows. The coefficient of determination is also very high (84%) indicating that most of the changes in GDP can be explained by FDI in the economy. Thus, it can be said that the purpose for which the FDI is attracted in the economy is being served to a very large extent. However, to get a true picture, a comparative study across economies indicating the contribution of FDI in the economic growth of these economies would be more justified. But, this is beyond the scope of this paper.

Conclusion
FDI has contributed in the process of growth in the world economy in general and the developing world in particular. From the study it is clear that FDI has positive impact on exports, imports and has greatly contributed to GDP. Foreign investment flows are growing more rapidly than world GDP and trade, implying increasing integration of world economy through capital and technology. New sectors such as retail, banking, insurance, drugs and pharmaceutical industry which are either thrown open or planned to be open for private and foreign investment, are the hopes for the Indian economy. To quote the recent trends, FDI equity inflows during April 2006 to November 2006 were $7.2 bn, which is the highest ever for equity capital since economic liberalization. The higher inflows as well as the new credit rating reflected growing investor confidence in India. According to A T Kearneys FDI confidence index, Indias rank as a FDI
Impact of Foreign Direct Investment in India 35

investment destination has improved from No. 15 in 2003 to No. 2 in 2006. According to the leading financial firm J P Morgan, the return on equity on investments made in India is the highest in Asia at 18%. Services sector has become the top sector in attracting FDI during April-November 2006. The importance of FDI in the countrys economy is in terms of not only generating economic activities and jobs, but equally in facilitating transfer of technology and managerial capabilities, which helps enhance Indias global competitiveness (Times News Network, 2007). Unlike China, India has not been able to attract substantial FDI; Indian manufacturing should be able to take advantage of foreign investment as a transmission belt for advanced technology. Unless India makes serious efforts in the direction of improving labor relations, financial sector and infrastructural facilities accompanied by long-term policy certainty, it is difficult to attract FDI continuously like other leading Asian nations. Therefore, Indias attitude and political intent towards foreign investment and technology has to be made clear in order to obtain huge foreign investment flows.

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10. Hunt Diana (1989), Economic Theories of Development: An Analysis of Competing Paradigms, p. 143, Harvester Wheatsheaf, New York, NY, USA. 11. Kindleberger Charles P (1958), Economic Development, McGraw-Hill Company, New York. 12. Kindleberger Charles P (1968), American Business Abroad: Six Lectures on Direct Investment, Yale University Press, New Haven. 13. Lee J, Rana P B and Iwasaki Y (1986 ), Effects of Foreign Capital Inflows on Developing Countries of Asia, Economic Staff Paper No. 30, Asian Development Bank, Manila. 14. Lerner Abba P (1944), The Economics of Control, The Macmillan Company, New York. 15. Lim Chong Yah and Tan Khye Chong et al. (1988), Policy Options for the Singapore Economy, Chapter 9, McGraw-Hill, Singapore. 16. MacDougall G D A (1966), The Benefits and Costs of Private Investment from Abroad: A Theoretical Approach, Economic Record, Vol. 36, No. 73. 17. Mehta Balraj (1991), Foreign Capital and Consumption Pattern, Monthly Commentary on Indian Economic Conditions, Vol. 32, No. 9, p. 10. 18. Ministry of Finance, Government of India, Economic Survey (1993-94), p. 12, New Delhi. 19. Murray Kemp (1960), Foreign Investment and the National Advantage, Economic Record, Vol. 38, No. 81, pp. 56-62. 20. Musila Jacob W and Sigue Simon P (2006), Accelerating Foreign Direct Investment Flow to Africa: From Policy Statements to Successful Strategies, Managerial Finance, Vol. 32, No. 7, pp. 577-593. 21. Na Lv and Lightfoot W S (2006), Determinants of Foreign Direct Investment at the Regional Level in China, Journal of Technology Management in China, Vol. 1, No. 3, pp. 262-278. 22. Pantelidis Pantelis and Dimitrios Kyrkilis (2005), A Cross Country Analysis of Outward Foreign Direct Investment Patterns, International Journal of Social Economics, Vol. 32, No. 6, pp. 510-519. 23. Papanek G F (1973), Aid, Foreign Private Investment, Saving and Growth in LDCs, Journal of Political Economy, Vol. 81 (February), pp. 120-130. 24. Ranis Gustav and Schive Chi (1985), Direct Foreign Investment in Taiwans Development in Galenson Walter (Ed.), Foreign Trade and Investment: Economic Development in the Newly Industrializing Asian Countries, The University of Wisconsin Press, Madeson. 25. Rao A V V S K (1995), Foreign Direct InvestmentPolicy Responses, Trends in India and China, paper presented at the international seminar on A Comparative Study of FDI in China and India, held at the Department of Economics, Osmania University, Hyderabad.
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26. Reddaway W B (1968), Effects of UK Direct Investment Overseas, Cambridge University Press, Cambridge. 27. Roy J Ruffin (1979), Growth and Long-run Theory of International Capital Movements, American Economic Review, Vol. 69, No. 5, pp. 832-842. 28. Soci Anna (2002), FDI: The Current State of Play, paper presented at the EAEPE (European Association for Evolutionary Political Economy) Conference at Crete, University of Bologna. 29. United Nations, World Investment Report (1997), New York. 30. Yue Chia Siow (1993), Foreign Direct Investment in ASEAN Economies, Asian Development Review, Vol. 11, No. 1, p. 75. Reference # 48J-2008-11-02-01

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The Icfai University Journal of International Business, Vol. III, No. 4, 2008