The export-diversifying impact of Japanese and US foreign direct investments in the Indian manufacturing sector

The paper highlights the export-diversifying impact of foreign direct investment (FDI) in a developing country. FDI may lead to export diversification in the host country if it positively affects the export intensity of industries that have a low share in world exports. Indirectly, FDI may encourage export diversification through spillover effects: that is, the presence of FDI in an industry may increase the export intensity of domestic firms. The empirical results for the Indian economy in the post-liberalisation period show that FDI from the US has led to diversification of India's exports, both directly and indirectly. However, Japanese FDI has had no significant impact on India's exports. Journal of International Business Studies (2006) 37, 558–568. doi:10.1057/palgrave.jibs.8400207