Do Financing Constraints Impact Outward Foreign Direct Investment? Evidence from India

This study examines the role of financing constraints in explaining outward foreign direct investment (FDI) using unique firm-level panel data on Indian manufacturing during the period 2007–2014. We consider the role of both internal and external finance, and employ instrumental variable probit and...

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Bibliographic Details
Published in:Asian development review 2018-03, Vol.35 (1), p.108-132
Main Authors: Sasidharan, Subash, Padmaja, M.
Format: Article
Language:English
Subjects:
Capital markets
Datasets
Economic models
Emerging markets
Exports
Finance
Financing
financing constraints
Foreign investment
Foreign subsidiaries
Global economy
Globalization
International trade
Manufacturing
outward FDI
Panel data
Productivity
total factor productivity
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Summary:This study examines the role of financing constraints in explaining outward foreign direct investment (FDI) using unique firm-level panel data on Indian manufacturing during the period 2007–2014. We consider the role of both internal and external finance, and employ instrumental variable probit and Tobit models to examine financing constraints in outward FDI decisions and intensity. We find that internal finance impacts the likelihood of outward FDI. Further, using count data models, we examine financing constraints in determining strategies regarding a firm's number of affiliates abroad. Our findings reveal that firms with greater cash flows and liquidity are likely to have more foreign affiliates.
ISSN:0116-1105
1996-7241
DOI:10.1162/adev_a_00107