Explaining Firm-Level Manufacturing Outward FDI from India Under Alternate Theoretical Frameworks

Abstract

The firm-level determinants of outward foreign direct investment (OFDI) intensity of Indian manufacturing firms are analyzed using a random-effects Tobit model for a panel dataset covering over 17,550 firms from 1992–1993 to 2018–2019. The explanatory variables are based on a theoretical synthesis of Dunning’s (1980) [Towards an eclectic theory of international production: Some empirical tests. Journal of International Business Studies, 11(1), 9–31] ownership–location–internationalization (OLI) model and Mathew’s (2002) [Competitive advantage of the latecomer firm: A resource-based account of industrial catch-up strategies. Asia Pacific Journal of Management, 19(4), 467–488] linkage–leverage–learning (LLL) model. The empirical evidence reveals that policy liberalization, size (up to a threshold level), age, business group ownership structure, and the extent of foreign earnings strongly impact the OFDI intensity of Indian manufacturing enterprises. In contrast, outsourcing intensity, technological efforts, product differentiation, export intensity, and use of imported intermediate inputs were found to have a moderate positive impact. A moderate negative impact was found for factors like the global financial crisis, debt-equity ratio, and technology imports, and a strong negative effect for foreign ownership and public-sector ownership structure variables.