Abstract
The past decade has witnessed increasing internationalization of developing countries’ economic activities, and this has become a permanent, sizeable and rising feature of the world economy. This phenomenon has taken place in the context of a progressive liberalization of international economic relations, which has led to a spectacular increase in both goods and services exchange as well as capital movements (Kumar, 2007; Pradhan, 2007a). India has recently embarked on the path of globalization through outward investment. At the same time, India’s exports have grown much faster than GDP over the past few decades (Sharma, 2000). In nominal terms, Indian outward foreign direct investment (OFDI) increased about 160-fold, from US$80 million to $12.9 billion between 1981 and 2006, and exports rose during the same period 14-fold, from $8 billion to $120 billion. The conceptual models of foreign direct investment (FDI) and international trade have traditionally been developed separately (UNCTAD, 1996). The integration of FDI and trade theories is still in its infancy, and research on their possible linkages is sparse.
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