Infrastructure as a Determinant of Foreign Direct Investment in India and China

Abstract

This study examines the role of infrastructure in attracting FDI inflows into India and China. Infrastructure is the main determinant in attracting sizeable amount of FDI. During the late 1990’s FDI inflows headed towards developing nations including China and India. China attracted huge amounts of FDI due to rapid growth in infrastructure. India attracted lower FDI due to slow phase growth in infrastructure. The infrastructure development is not similar in both the countries; similarly, the magnitude of inflow of FDI is different. The present study empirically examines the inflow of FDI in to India and China in relation to the physical infrastructure development during the period 2000 to 2012. Regression analysis is employed to study the causal relationship between the inflow of FDI and the infrastructure. Total Road Length, Total Rail Length, Air Passengers, Internet Users, Mobile Cellular Subscriptions and Electricity Production are highly positively related with FDI; In India, Air Passengers, Internet Users, Mobile Cellular Subscriptions and Electricity Production are highly positively related with FDI. Among the infrastructure variables, heavy FDI investment is attracted by the Energy Sector (Electricity Production) both in China as well as in India.