Title: Analysis of factors determining the inward FDI in top seven Indian states from top seven source countries using gravity model

Authors: Ramasamy Murugesan; Murugesan Poovendhan

Addresses: Department of Humanities, National Institute of Technology, Tiruchirappali – 620 015, India ' Department of Humanities, National Institute of Technology, Tiruchirappali – 620 015, India

Abstract: Using gravity model to the analysis of regional factors of FDI inflows into India, this study aims to analyse and determine the attractiveness factors of top 7 receiving Indian states from top seven investing countries' FDI for the period 2004 to 2013. Two econometrics methods were used: OLS estimation and ML-estimation of binary dependent variable models. The results suggest that gross products of host states and source countries, agglomeration effect, capital city advantages, cultural closeness and skilled labour abundance are positively related to the number of foreign firms in a particular Indian state. The distance between host states and source countries is negatively related. As for the resource abundance there is no evidence of an expected positive influence on the dependent variable. The main result of the study is that the necessary condition for FDI presence in a particular Indian states is its economic performance measured by gross regional product.

Keywords: gravity model; inward FDI; foreign direct investment; relative attractiveness; OLS; ordinary least squares; binary dependent variable models; India; econometrics; economic performance; gross regional product.

DOI: 10.1504/IJEBR.2016.076152

International Journal of Economics and Business Research, 2016 Vol.11 No.3, pp.209 - 230

Received: 04 Jul 2015
Accepted: 24 Nov 2015

Published online: 26 Apr 2016 *

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