Understanding India s FDI Landscape Factors Shaping Investment Inflows and Outflows

Abstract

newlinevi newlineABSTRACT newlineForeign direct investment (FDI) has traditionally been examined through the lens of capital flows newlinefrom developed nations (DN) to emerging economies (EE). However, in recent years, a notable newlineshift has been observed, with emerging economies increasingly engaging in outward FDI, newlineparticularly towards developed nations. This research seeks to explore the factors that drive this newlinetrend by employing the Ownership-Location-Internalization (O-L-I) framework, which has newlineconventionally been applied to analyze FDI from developed to developing nations. The novelty newlineof this study lies in its application of the O-L-I paradigm to outward FDI originating from newlineemerging economies, thereby broadening the scope of its explanatory power. newlineTo achieve this, we map investment patterns across three dimensions FDI from EE to DN, EE newlineto EE, and DN to EE by incorporating country-specific ownership, location, and internalization newlineadvantages. The study utilizes twenty years of panel data from nine countries, applying pooled newlineordinary least squares (OLS), random-effects, and fixed-effects models to examine the causeeffect newlinerelationships influencing investment flows. Our findings indicate that technological newlineadvancement, infrastructure development, and economic stability play a crucial role in shaping newlineoutward FDI decisions. In particular, patents and infrastructure emerge as key determinants that newlinefacilitate investment from emerging to developed economies. newlineThe results suggest that emerging economies strategically leverage their ownership-specific newlineadvantages, such as technological capabilities and intellectual property, to establish a foothold in newlinedeveloped markets. Additionally, robust infrastructure in the host country enhances the newlineattractiveness of FDI destinations. These insights contribute to the existing body of literature by newlinedemonstrating that outward FDI from emerging economies is not solely driven by market-seeking newlinemotives but also by strategic asset-seeking considerations. The study provides valuable newlineimplications for policymakers and investors, emphasizing the evolving nature of global newlineinvestment flows and the critical role of institutional and economic factors in shaping these trends. newlineKeywords: developed nations, emerging economies, foreign investment, OFDI, OLI paradigm