The investment development path theory: evidence from India

Abstract

PurposeThe purpose of this paper is to focus, at the country‐specific level, on India's recent outward foreign direct investment (OFDI) surge, and more broadly test the investment development path (IDP) hypothesis for India.Design/methodology/approachA combination of descriptive and empirical analysis has been used to ascertain the relevance of the IDP theory for India. The theoretical background of this paper is the IDP hypothesis, which states that the net outward investment position (NOIP) of a country depends on its level of development. The hypothesis is tested with a time series data set from 1991 to 2006.FindingsThis paper highlights that while India's sharp rise in investments since 1991 has followed the gross domestic product driven development, its NOIP fails to exactly match the stylized IDP model.Research limitations/implicationsThis paper undertakes a macro level analysis and has not tested the hypothesis at the sectoral or bilateral levels.Practical implicationsThe paper identifies some peculiar features of Indian OFDI that cannot be explained by the IDP modelper se. Hence modifications are required for a fuller understanding of India's investment position.Originality/valueThis paper addresses an under researched topic of Indian OFDI.