Firms efficiency as a determinant of FDI in Indian manufacturing sector

Abstract

The increase in foreign direct investment in to developing economies has initiated a countable research in identifying the key determinants of foreign investments. There are various motives used by Multinational enterprises (MNE) for foreign investments resource seeking, market seeking and efficiency seeking motives. The MNE s focus on Efficiency Seeking FDI is larger in developing economies due to stronger accessibility to natural resources and cost advantages. Since very few studies have been conducted in assessing the efficiency as a key determinant for attracting FDI, this study is an effort to evaluate the role of efficiency of Indian Manufacturing firms in attracting Foreign investments. The research has been conducted on selective Automobile and Pharmaceutical companies. The study has been conducted using two stage analysis Data Envelopment Analysis and Regression Analysis. The results of the study reveals that, few company s efficiency has an influence on attracting Foreign investments in the same year, and for some the efficiency of firm influences on attracting foreign investments in the next 1year, 2 years and so on. The firms have been able to attract foreign investments as per the performance in the previous years as well.