Nottingham Centre for Research on
Globalisation and Economic Policy (GEP)

GEP 2022/10: Foreign direct investment, prices and efficiency: Evidence from India

Abstract

This paper uses a rich panel data set of Indian manufacturers to analyze the effects of foreign direct investment (FDI) on domestic firms. Detailed product-level information on prices and quantities allows us to estimate physical productivity and marginal costs. In line with the previous literature, we find little evidence for horizontal spillovers based on commonly used measures of revenue productivity. In contrast, we measure sizable efficiency gains using measures that are not affected by pricing heterogeneity. Our results indicate that domestic firms can benefit from the ability of multinational subsidiaries to produce high-quality products at relatively low costs.

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Authors

Nesma Ali and Joel Stiebale 

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Posted on Wednesday 5th October 2022

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