Outward foreign Direct investment from Developing Countries. A study on the economic and institutional factors that can have an influence on the occurrence of outward FDI from India and Brazil

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Master Thesis Public Administration

Outward Foreign Direct Investment from

Developing Countries

A study on the economic and institutional factors that can have an influence on the occurrence of outward FDI from India and Brazil

Bruna Consiglio de Souza Student ID: s1514253

E-mail: b.consiglio.de.souza@umail.leidenuniv.nl

Supervisor: Dr. N. A.J. van der Zwan Second Reader: Dr. S.N. Giest

MSc Public Administration

Governing Markets: Market Competition and Regulation Leiden University

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Abstract

This research has been conducted to investigate a relatively new phenomenon, which is the increasing occurrence of outward foreign direct investments (OFDI) from developing countries. To better understand which factors might influence the increasing occurrence of this activity in the developing world, this study has focused on different economic and governmental institutional factors. The economic factors observed are framed by the theoretical framework provided by the IDP hypothesis, and the institutional factors are mainly based on findings from previous studies in this field. The developing countries that have been observed are Brazil and India, which are two countries that have experienced substantial increases in their levels of OFDI over the past decades. Based on the findings obtained through this study, it seems that both economic and institutional factors might have a relation with the occurrence of OFDI in the two countries observed. The empirical observations included in this study indicates that institutional factors such as the relaxation of capital controls for OFDI and the presence of pro-market policy-makers in key institutions might contribute to the occurrence of OFDI in India and possibly in Brazil as well. To confirm whether or not these factors indeed have a possible relation with Brazilian OFDI, however, further research is necessary, including other factors that have not been observed in this research (e.g. indicators of economic stability). In addition to the findings mentioned above, this study also suggests that economic factors such as expenditures on research and development and increases in inward FDI might also have a relation with the levels of OFDI from both countries.

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1. Introduction

Outward foreign direct investment1_{(OFDI) is an economic activity that has been predominantly}

practiced by developed countries. In other words, OFDI has consisted mainly of firms from developed countries investing overseas. Interestingly, however, in the past decades, an increasing number of firms from developing countries have engaged in OFDI activities as well, constituting a relatively new phenomenon (Saad et al, 2014; Luo et al, 2010). An analysis on the evolution of OFDI from developing countries indicates that up until the 1980s, outflows of FDI from developing countries took place moderately, without substantial increases. From the 1980s onwards, however, it is possible to see that more substantial increases began to take place. For example, in 1980 outflows of FDI from developing countries totaled approximately USD 3 billion, and one decade later these outflows were significantly higher, totaling USD 13 billion in 1990. Following this trend of substantial increases, more recently, in 2014, this number has risen to USD 468 billion (UNCTAD, 2014).

This phenomenon has gained the attention of many scholars, who want to understand which factors could possibly explain this increase in OFDI from developing countries. As the next chapter will explain, most authors have conducted analyses on the occurrence of OFDI as a result of economic development. This type of analysis is framed by the Investment Development Path hypothesis (hereinafter IDP hypothesis), which suggests that OFDI occurs as a natural consequence of economic growth in a country (Liu et al, 2005). Over the years, however, especially from the mid-2000s onwards, a small group of scholars began to criticize the theoretical approach offered by the IDP hypothesis. According to these scholars (e.g. Stoian, 2013; Khoon & Wong, 2011), the IDP hypothesis cannot fully explain the occurrence of OFDI in developing countries because it neglects other factors that could play important roles influencing this activity. These authors were referring

1_{The definition of OFDI being used in this research is as follows: “OFDI is a business strategy where a domestic firm expands}

its operations to a foreign country either via a green field investment, merger/acquisition and/or expansion of an existing foreign facility”. Source: Investopedia (http://www.investopedia.com/terms/o/outward_direct_investment.asp), retrieved in Dec. 2015.

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5 to governmental factors. That is, they believed that certain public institutions and policies could also have an effect on the occurrence of this economic activity in developing countries. Based on that, many of these authors have combined economic and institutional factors to find out whether or not they could possibly have a relation with OFDI (e.g. Stoian, 2013; Khoon & Wong, 2011). The methodology used by these scholars was to conduct regression analyses to investigate whether or not the variation of numerical variables indicating economic and institutional factors could have a relation with the variation of OFDI for the countries analyzed.

The idea of integrating both economic and institutional factors in a study on the possible determinants of OFDI seems to be plausible, and this study will also follow this line of research. Nevertheless, in this research I argue that this type of study should be carried out in a different way. To find out whether or not certain institutional factors could have an effect on OFDI, I suggest that a research should not take place through linear regressions since such approach only attempts at finding out whether or not a possible relation between variables exists. More importantly, in my view, a study should also attempt to find out how that relation could have taken place, and who the actors enhancing this relation are. Thus, because I want to present a more informative analysis on the factors that could contribute to the occurrence of OFDI, I will combine quantitative and qualitative data to test both theories (i.e. economic and institutional). In this research I will focus on two developing countries, namely Brazil and India, with the goal of answering the following question: To what extent are economic and governmental institutional factors associated with the occurrence of OFDI for Brazil and India?

This study is theoretically relevant because, differently from the previous studies carried out in this area, it will include both a quantitative and a qualitative analyses on different factors that could have an influence on OFDI. The findings included in this study should be more informative because they will not only address some of the public policies and institutions that can have an effect on OFDI in India and Brazil, but they will also include observations on the policy-makers driving these institutions and policies, including their motivations in terms of OFDI governance. When it comes to the societal relevance of this study, I suggest that this research can be of relevance to policy makers in other developing countries. This is because, through the findings enclosed in this study, it will be possible for other policy makers to find out whether certain policies and institutional arrangements seem to be effective in enhancing and/or promoting OFDI in

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6 developing countries. Or, on the contrary, this research can also be informative to policy-makers in case it shows that in Brazil and India OFDI seems to be associated mainly with economic development, and not so much with institutional factors. In sum, policy-makers interested in enhancing OFDI in their countries can learn more about the governance of this activity based on the Indian and Brazilian experience.

The remainder of this thesis will proceed as follows: The next chapter will offer an overview on previous studies in this area, providing a theoretical background for this research. The following chapter will then elaborate on the design and methodology of this research. In that chapter I will specify which factors are going to be framed as ‘economic factors’, and which ones will be the ‘institutional factors’ for this research. The fourth and fifth chapters present the case studies on India and Brazil. There I will include my observations on the economic and institutional factors that I have selected to observe in this research for India and Brazil. The following chapter will present an analysis on the findings enclosed in the case studies, with the purpose of highlighting those factors that seem to be the most applicable to explain the occurrence of OFDI in Brazil and in India. Finally, in the conclusion I will present the answer to the research question of this study, and will give suggestions for further research.

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2. Literature review

This chapter will present an overview of previous academic studies in the field of OFDI in order to provide some background information about this economic activity in developing countries. For the purpose of this research, this chapter will be divided as follows: the first sub-section will offer a brief historical overview of OFDI in developing countries, and the second one will present some of the pros and cons of OFDI for the economy of the investing country; the third and fourth sub-sections will then follow by elaborating more on the economic and institutional factors that, according to the literature, can have an influence on OFDI. These last two sub-sections will be used here as a theoretical framework for this research.

2.1 Brief historical overview of OFDI from developing countries

By examining the literature on the evolution of OFDI from developing countries, it is possible to see that many authors divide this evolution in two waves to explain how this process has taken place (Narula & Nguyen, 2011; Saad et al. 2014). Based on the observations of these authors, the first wave emerged in the 1980s. During this wave, firms from developing countries sought to expand their operations across borders mainly with the purpose of acquiring more natural assets (Narula & Nguyen, 2011). Due to their lack of international experience, however, these firms did not expand their activities into different parts of the globe. Instead, they concentrated their investments in neighboring countries, which in most cases were at an earlier or similar stage of development. In other words, this means that firms from developing countries were mainly investing in other developing countries during this first wave.

Some exceptions, however, existed, meaning that certain firms from developing countries were already expanding their operations into developed economies as well. Examples of such developing countries are Brazil, China, and Mexico. During this first wave, economies such as Argentina, Korea, Taiwan, Brazil, Singapore, and Mexico extended their investments across borders significantly (Dunning, 1998; Narula & Nguyen, 2011), and in general, outflows of FDI from developing countries increased substantially from USD 3 billion in 1980 to USD 16 billion

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8 in 1989 (UNCTAD, 2014). This first wave lasted until the late 1980s, when a shift in OFDI practices began to occur.

By the early 1990s, the second wave of OFDI was taking place. During this wave, an increasing number of firms from developing countries had gained more international experience and began to extend their investments substantially into developed economies. These firms were mainly interested in acquiring natural resources, expanding their markets, exploiting new assets, and augmenting their own assets abroad. Interestingly, many of the economies that were active during the first wave of OFDI did not play a prominent role during this second wave. In fact, the economies that led this second wave were mainly the newly industrialized Asian economies, such as Taiwan, Korea, Hong Kong and Singapore, which were indicating the increased competitiveness of their firms and dynamism of their economies (Narula & Nguyen, 2011; Saad et al. 2014; Dunning, 1998). As a consequence of their expansions, these newly industrialized Asian economies had their share of all developing country OFDI stock increased from 21% in the 1980s to 66% by 1993 (Narula & Nguyen, 2011).

By analyzing these waves of OFDI, one question that arises is: what explains the occurrence of these two waves? One hypothesis is that the waves of OFDI could be a reflection of the different development paths that developing countries have followed. For example, the substantial increase in OFDI experienced by newly industrialized Asian economies could be a reflection of the development model that these economies have adopted decades earlier. For instance, as Haggard (1990 p. 25) explains in his book entitled Pathways from the Periphery, since the 1970s a number of Asian economies (led mainly by Korea, Taiwan, Singapore and Hong Kong) have adopted a model of development based mainly on export-led growth. Governments in many of these economies have promoted this growth by, for instance, providing financial and fiscal support to industries focusing on exports, targeting industrial policies, and liberalizing trade and investment. Possibly, by expanding their export activities, these economies have become more internationalized and open to foreign markets, and this could have led to the significant increase in OFDI that these economies experienced during the first and mainly during the second waves of OFDI.

Latin American countries, on the other hand, have followed a model of economic development based mainly on import substitution. This model has taken place at least since the early 1990s, and

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9 it focused on enhancing self-sufficiency in Latin American economies so they would be less dependent on imports (Haggard, 1990, p. 25). With that been said, it could be possible to suggest here that this economic model that has been adopted in Latin American economies restricted their economic transactions mainly to the home country and to the Latin American region, and this could possibly explain why these countries have not extended their OFDI activities to the same extend as their Asian counterparts during the second wave in the 1990s.

Currently, however, from the 2000s onwards, it is possible to see that an increasing number of developing countries from different regions (e.g. Asia, Latin America, and Eastern Europe) have in general increased their OFDI activities substantially, with investments in both developing and developed economies. As a result of this growth, between 2009 and 2010 outflows of FDI from developing economies increased by 20.9 percent (from USD 270.7 billion in 2009 to USD 327.6 billion in 2010), indicating the significant increase in competitiveness and internationalization of these economies (Saad et al. 2013, p. 238).

2.2 – The pros and cons of OFDI

The aforementioned growth in OFDI indicates that developing countries are becoming increasingly attracted to the possible benefits that they can obtain by extending the operations of their firms abroad. The literature on OFDI points out several benefits that can be associated with this economic activity. For instance, authors such as Saad et al. (2013) and Sauvant (2005) argue that firms investing overseas will benefit by entering new markets as they will gain new customers in different states. Moreover, by operating in other states, these firms will have more access to foreign technology, and they will also benefit from being able to import intermediate products at lower prices in case the prices in their home countries are higher than those in host countries (Saad et al. 2013).

In addition to firms, consumers in the home country can also benefit from OFDI. For instance, if the relocation of production facilities to other countries results in a more efficient use of resources, the costs of production will be lower, which can result in lower prices for consumers at home (Saad et al. 2013; Sauvant, 2005). OFDI can also lead to benefits to the workforce in the home country. For instance, in case the relocation of production activities leads to a concentration of skilled-labor intensive activities at home, there would be more incentives in the home country to educate

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10 workers so they can become highly skilled to meet the growing demand for skilled labor in the labor market (Berman et al. 1994).

There are, however, other aspects of OFDI that are not as positive for the home country as the ones mentioned above. For instance, OFDI is often associated with skills transfer and job losses in the home country (Saad et al. 2013, p.239). The debate about these negative consequences of OFDI, however, leads to mixed conclusions. For instance, Saad et al (2013) argue that in certain instances OFDI could also create jobs in the home country. According to them, if foreign production takes place complementing domestic production, the foreign subsidiary will then use inputs from the home country to produce outputs. If, in this case, the relocation of production processes take place as to use resources in a more efficient way, marginal costs of production could possibly become lower. As marginal costs of production decrease, outputs tend to increase. As a result, the creation of more outputs would require the creation of more inputs, consequently leading to job creation in the home country (Saad et al. 2013, p. 239). It is important to stress, however, that this case described by Saad et al. illustrates a scenario in which the entire production process takes place in an efficient manner, and foreign production complements domestic production. In other cases (e.g. when foreign production does not complement home production), OFDI might not occur as the authors describe, and job losses in the home country can indeed become an issue to be considered. According to Saad et al. (2013, p.239), however, most scholars seem to agree that OFDI end up strengthening the remaining economic activities at home. This claim is mainly based on arguments that OFDI can lead to more efficient production processes, lower prices for consumers, more competitive firms, and more specialized division of labor (Saad et al. 2013; Sauvant, 2005). As a conclusion, based on the analysis of the literature in this field, it is possible to argue here that OFDI can lead to many gains for the economy of a country; however, less positive consequences such as job losses in the home country can also occur and should not be neglected as a possible risk that OFDI entails.

2.3 – Economic development and OFDI

Given the increasing attention that OFDI has received in developing countries over the past decades, one question that arises is: What are the factors that determine OFDI for developing countries? Throughout the past decades, most scholars conducting research on the determinants of OFDI have focused exclusively on OFDI as an achievement from economic development. The

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11 rationale used by these scholars is that as the economy of a country develops, that country will develop as well (e.g. that country might experience more technological innovations as a result of increased investments on technology that were enabled due to economic growth). The firms from that country will also benefit from such developments if they incorporate them into their operations. As a consequence of such incorporations, these firms will become more competitive (i.e. more able to exploit their newly acquired advantages against their competitors). Thus, because these firms are more competitive, they will be more likely to expand their operations abroad so they can reach new markets, acquire new resources, and consequently increase their sources of profit. Thus, in sum, according to this rationale the levels of economic development in a country can have an effect on that country’s levels of OFDI (Dunning et al, 2001).

The classic work that has influenced a substantial number of researches in this field in the past decades is the study by Dunning (1981), entitled Explaining the International Direct Investment

Position of Countries: Towards a Dynamic Development Approach. Originally, Dunning

investigated the variations in a state’s outflows of FDI with the variations of that state’s economic development. This investigation took place mainly by measuring variations of levels of OFDI and variations of levels of GDP per capita in an economy. This analysis is commonly known as the ‘IDP hypothesis’ (standing for Dunning’s Investment Development Path Hypothesis). This hypothesis has been tested over the years by many scholars, and it was often supported by their empirical analyses (e.g. Buckley & Castro, 1998; Barry et al., 2003; Bellak 2001).

Over the years, however, many scholars argued that investigating only GDP per capita in an analysis is incomplete. They affirmed that many other economic factors could also be indicators of economic development and, consequently, they could also have an influence on a state’s levels of OFDI. As a result, most recent research testing the IDP hypothesis began to include other variables in addition to GDP per capita. For instance, Durán & Ubeda (2001) have used ‘national resources and development mode’ as complementary variables, and Liu et al. (2005) have used ‘investments in human capital’, “levels of exports’, and ‘levels of inward FDI’ as complementary to GDP per capita. By that time, Dunning also recognized the limitations of his original IDP hypothesis and also started to use complementary variables in his analyses. For instance, in 2001 he conducted an analysis together with other scholars where he combined the variables ‘foreign

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12 trade’ and GDP per capita as indicators of economic development to test the IDP hypothesis (Dunning et al, 2001).

Even though Dunning admits that other variables should be used together with the variable GDP per capita, he makes it clear that the variation of GDP per capita is still paramount in the analysis of economic development. For instance, in 2001 Dunning et al. published a reviewed elaboration on the process of the investment development path (Dunning et al. 2001). By analyzing their elaboration on this process, it is possible to conclude that GDP per capita still plays a significant role in the IDP analysis. According to the authors, the process of investment development path (IDP) takes place through the following four stages (Dunning et al. 2001):

The first stage corresponds to a pre-industrial phase in the investment development path. Economies at this stage should have a GDP per capita bellow USD 1000 (at 1994 prices), and in general they only receive a small volume of inward FDI. This small volume is mainly a consequence of the economy’s underdevelopment and weak locational advantages (e.g. a poorly educated labor force) which makes the economy less attractive to foreign investors. In addition to that, the underdevelopment of these economies lead them to have smaller market sizes, which again makes these economies less attractive to foreign investors due to limited purchasing power. OFDI in these economies is insignificant due to their poor locational advantages (e.g. poorly educated labor, low investment in innovation, etc.), and for this reason, economies at this first stage are mainly net recipients of FDI.

The second stage comprises economies that enjoy better locational advantages and, for that reason, attract larger volumes of FDI. Economies at this stage are characterized as those possessing a GDP per capita between USD 1000 – 3000 (at 1994 prices). These economies enjoy a rapid economic growth and consequently experience a growth in the sizes of their markets, which attracts both resource-seeking and market-seeking investments from foreign investors. At this stage, elements of OFDI begin to emerge. This is mainly because local firms are starting to incorporate some of the locational advantages of their home countries into their operations (e.g. they could be incorporating developments such as technology and other innovations into their operations). Thus, as these companies develop, they tend to extend their operations across borders in order to reach

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13 new markets and acquire more resources. OFDI in these economies, however, is still small. Therefore these economies are still mainly net recipients of OFDI.

At the third stage, economies enjoy a higher GDP per capita (between USD 3000 – 10,000 at 1994 prices). Economies at this stage experience continuous improvements in their locational advantages, which eventually end up becoming ownership advantages to their firms (e.g. locational advantages such as an increase in investments in technology becomes an ownership advantage to firms as these firms begin to gain technological knowledge as a result of these investments). At this stage economies experience increasing outflows of FDI. The firms in these economies are more prepared to enter international markets and compete internationally, seeking possibilities to start exploiting their own assets across borders. These economies, however, remain net recipients of FDI.

The fourth, and final, stage, corresponds to those economies enjoying a GDP per capita above USD 10,000 (at 1994 prices). At this stage, economies are net outward investors due to the ownership advantages enjoyed by their firms. These economies see their outward FDI growing faster than inward FDI. If these economies keep developing they will go beyond stage four, which means that they will finally become major exporters, enjoying highly advanced technologies and higher living standards.

This rationale of the investment development path has been widely adopted by scholars in the past three decades. As new variables were being added to complement the variable GDP per capita, the IDP hypothesis acquired more acceptance until it became widely used by researchers (Liu et al., 2005). It is important to note, however, that even though the IDP hypothesis gained significant acceptance, it did not escape criticism. For instance, Kuada & Sorensen (2000) conducted an analysis on the economic development of Ghana, and what they found is that even though Ghana has moved through stages of economic development, it did not experience an increase in OFDI as the IDP hypothesis suggests. Similarly, Erdilek (2003) has obtained the same findings for Turkey. The IDP hypothesis has also been criticized because, according to some scholars (e.g. Stoian, 2013; Kalotay & Sulstarova, 2010), this paradigm neglects the role that institutions play as determinants of OFDI. In fact, by analyzing researches framed by the IDP hypothesis, it is possible to conclude that many authors using that paradigm indeed see the emergence and growth of OFDI

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14 simply as an automatic consequence of economic development, without considering the possible effects that institutions and policies can have on the occurrence of OFDI.

A good example here is the study that Liu et al. (2005) conducted on Chinese OFDI. According to Liu et al. (2005, pp. 112 -113), the emergence and growth of Chinese OFDI is consistent with the IDP hypothesis. They conclude that, for that reason, there is no need to look into the Chinese institutional framework to understand the origins and evolution of Chinese OFDI. In fact, these authors suggest that policies designed to directly promote OFDI in a country might be unnecessary, and this is because OFDI can evolve simply as a result of economic growth (Liu et al. 2005, pp. 113).

Those scholars who criticize the IDP hypothesis on the grounds that it neglects the power of institutions, claim that the IDP hypothesis should be further extended to include institutional variables (e.g. Stoian, 2013; Kalotay & Sulstarova, 2010). Especially in the context of OFDI from developing countries, these scholars argue that analyzing institutional factors can be of relevance. For instance, according to Stoian (2013), developing countries (especially emerging markets and transition economies), often have particular institutional characteristics that have been put in place in order to enhance and drive their economic development so they can “catch up” with developed economies in a globalized world. These institutional characteristics, according to Stoian (2013), deserve the attention of researchers conducting analyses on the determinants of OFDI in these economies since they might have an influence on OFDI.

This kind of argument has gained the support of an increasing number of scholars from the 2000s onwards. As a consequence, by the mid-2000s, it is possible to see that several researchers focusing on OFDI from developing countries began to give more attention to institutional variables in their analyses on the determinants of OFDI (e.g. Stoian, 2013; Khoon & Wong, 2011; Wang et al., 2012). The next sub-section will elaborate on these scholarly works.

2.4 –National institutions and policies as determinants of OFDI

As mentioned in the previous sub-section, many recent studies on the determinants of OFDI from developing countries are focusing not only on the economic determinants of OFDI, but also on the possible institutional factors that can influence OFDI as well (e.g. Khoon & Wong, 2011; Stoian, 2013). Next to that, some other studies have focused solely on the institutional determinants of

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15 OFDI, excluding possible economic determinants (e.g. Wang et al. 2012; Luo et al. 2010). What these studies have in common, however, is that they all recognize that national institutions and policies can have an impact on the occurrence of OFDI. Most of these researches focus on two specific groups of developing countries, namely emerging markets (Khoon & Wong, 2011; Wang et al. 2012; Luo et al. 2010), and transition economies (Stoian, 2013; Blanke-Ławniczak, 2009)2_.

The reason why these groups of developing countries have gained increasing attention by scholars is because they are the ones experiencing the most substantial increases in OFDI (Stoian, 2013). According to Luo et al. (2010), including national institutional factors in the analysis of the determinants of OFDI in developing economies is of great importance. They justify this claim by explaining that, in this type of economy, enterprises often face competitive disadvantages such as, for instance, lack of international experience and/or lack of capital. Thus, for that reason, governments in these countries often step in to coordinate the functioning of institutions and policies in order to offset these competitive disadvantages. In the context of outward FDI, this means that governments can coordinate the functioning of institutions and policies in order to promote OFDI (e.g. governments can design programs aimed at assisting firms to expand their operations across borders - more specific examples of such programs can be found further in this sub-section).

Institutional factors, in fact, seem to have an influence on the occurrence of OFDI. For instance, Stoian (2013) has conducted an analysis on the determinants of OFDI from twenty Central and Eastern European states. The analysis conducted by Stoian was an extended version of the IDP hypothesis (using linear regression), in which not only economic, but institutional numerical variables were also included as possible determinants of OFDI. What Stoian has found is that one particular institutional variable can be considered as a significant determinant of OFDI from Central and Eastern European states. This factor is ‘overall institutional reforms’, which includes, for instance, privatization, price liberalization, and banking reforms. According to Stoian (2013, p.623), ‘overall institutional reforms’ comprise a wide mix of institutional reforms that have been

2_{To clarify the difference between these two groups of developing countries, emerging markets can be defined as}

economies that present certain characteristics of a developed economy, but still do not meet all the economic standards (e.g. such as sustainability of economic development) to be considered a developed economy (MSCI, 2014, p. 1). Transition economies, on the other hand, are those economies that are transitioning from a centrally planned economy (e.g. post-communist economies) towards a market economy (Feige, 1994).

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16 implemented in post-communist economies with the purpose of ensuring their transition from centrally planned to market economies. The author explains that these overall institutional reforms reflect an economy’s level of competitiveness and development. That means that the more advanced these overall institutional reforms are, the more competitive and developed an economy is. As a consequence of this increased development and competitiveness, the author suggests, firms in these economies gain more entrepreneurial confidence and increase their investments both inside and outside their home country (Stoian, 2013, p. 623). Other authors have conducted similar studies and their findings also supported the idea that institutional factors can have an effect on OFDI. For instance, Khoon & Wong (2011) have found that the liberation of capital outflows can lead to an increase in OFDI for Malaysia, and Salehizadeh (2007) has found that the deregulation of financial and capital markets, and the maintenance of sound monetary and fiscal policies can enhance OFDI in both emerging markets and transition economies.

The studies mentioned above present the role that broad institutional reforms can play in enhancing OFDI in developing countries. In other words, they focus on outcomes of institutional reforms and operations, and on whether or not these outcomes can possibly have an impact on OFDI. For instance, the deregulation of financial markets allows firms to invest abroad more easily. If firms can carry out investments abroad more easily, they can take part in OFDI activities more easily as well. Thus, deregulation of financial markets might lead to an increase in OFDI. These studies, however, are limited to such broad conclusions. Possibly because they have been conducted mainly through quantitative analyses (e.g. regression analyses), they fail to investigate in depth the possible relationships between institutional operations and the occurrence of OFDI. For instance, these researches do not investigate in depth which actors (i.e. policy-makers) are involved in these institutional operations, and which specific tools they use in order to facilitate OFDI. Moreover, questions such as what are the specific motivations of these actors? And what are the main

institutions that seem to have a direct influence on outward FDI? are left unanswered in such

studies. This means that even though these studies further contribute to the theoretical knowledge on possible institutional determinants of OFDI, they still do not address in depth how and which institutions could possibly have an impact on OFDI in a country.

This does not mean that there are no qualitative studies analyzing the roles of different institutions in the promotion of OFDI in developing countries. However, this type of study is still rare, and it

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17 often focuses only on the national government as an actor that can have an influence on the occurrence of OFDI. This means that such studies neglect possible economic and international institutional factors that could possibly have an influence on OFDI.

One such study, for instance, is the one conducted by Luo et al. (2010) on government determinants of OFDI from China. What Luo et al. suggest in their study is that the Chinese strategy which is commonly known as ‘going global strategy’ seems to contribute significantly to the country’s levels of OFDI. Luo et al. present in their study an in-depth analysis of many domestic institutions that are involved in the Chinese ‘going global’ strategy. According to the authors, this strategy comprises a set of policies and institutional reforms such as: (1) the creation of incentives for OFDI (e.g. the provision of fiscal incentives such as tax incentives and low-interest loans to firms that want to invest abroad), (2) easing capital controls for OFDI by designing more liberal policies, and (3) providing information and guidance to firms with regards to possible investment opportunities abroad (Luo et al. 2010, p. 70).

Similarly, a study conducted by Sauvant (2005) also mentions that similar policies have been adopted in developed countries, and, as the author suggests, they might have contributed to the high levels of OFDI that these countries enjoy. Such policies include, for instance, the provision of low interest loans to support the direct investments of domestic firms abroad, and also the provision of information and technical assistance to firms investing overseas (ibid. p.642). These government initiatives that are more specifically aimed at promoting OFDI present certain similarities with what Johnson (1982) termed as the ‘developmental state’. According to Johnson, one of the characteristics of a developmental state is that the government not only creates a favorable environment for economic activities. Instead, governments in developmental states have clear goals for the development of the economy, and they therefore create policies and drive institutional changes with the intention of supporting and achieving those goals. It is, however, important to mention that in a developmental state the government suppresses democracy in a way that it can have more control and autonomy over its development plans. Thus, I do not refer to this characteristic of a developmental state when I mention some of the similarities between this type of economic governance and the ones mentioned above. The only characteristic that I emphasize – due to its relevance for this study - is that both of them have an economic governance that focuses on achieving a particular economic goal. In this case, the goal being the promotion of OFDI. In

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18 sum, thus, it is possible to infer here that OFDI has been recognized by different governments in both the developed and the developing world as an important strategy to achieve economic development. For that reason, many of these governments have created incentives specifically targeted at promoting OFDI.

Given that institutional arrangements and policies seem to play a role in the occurrence of OFDI, this study will follow this line of research to find out in depth how some of these institutional factors can have an effect on this economic activity for developing countries. In order to add to existing studies in this field, this research will be conducted through two case studies on two developing countries, namely Brazil and India. The focus on two case studies will enable this research to elaborate more thoroughly on two developing countries that have presented substantial increases in their levels of OFDI over the past decades. To present a more informative analysis on the different factors that might influence OFDI in these countries, this research will not only focus on institutional factors, but it will focus on economic factors as well.

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3. The purpose of this research and its methodology

As previously mentioned in the literature review, through this research I want to conduct a more informative analysis on some of the economic and institutional factors that could have an influence on OFDI in developing countries. What will make this study different from previous ones is that this study will not be restricted to a more superficial analysis on the government institutions and policies that can have an influence on OFDI. Instead, this research will go more in depth and will include an analysis on the policy-makers that participate in the governance of those institutions, with observations on their economic motivations and policy preferences. In addition to that, in this research I will not only observe national policies and institutions, but also international ones, such as the International Monetary Fund (IMF) and the World Bank. My goal here is to carry out these observations in order to offer more context to the role that public institutions can play in the occurrence of OFDI in developing countries. In my view, these observations, combined with observations on economic factors, will result in a more holistic analysis of the different factors that could have an influence on OFDI.

3.1- Methodology

Because the goal of this study is to provide a deeper understanding on the possible determinants of OFDI in developing countries, I have chosen to conduct this research in the form of a multiple case study. For this research, two developing countries will be analyzed, namely Brazil and India. The reason why I have chosen to conduct two case studies is:

1- A case study design will allow me to investigate in depth how a phenomenon – in this case OFDI – is taking place in two different developing countries.

2- By conducting case studies on two developing countries, this research will be more informative than it would be in case only one country was being observed. For instance, through this research, it will be possible to see whether these two developing countries located in different continents have any similarities in the way they see and address OFDI. Similarities in these two countries could be possible indicators of similar paths that developing economies – or more specifically emerging markets – are taking. For instance,

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20 similar policies to enhance OFDI could indicate that these countries have similar motivations to promote this economic activity. Thus, in sum, by analyzing two countries a greater contribution to the current knowledge on the possible determinants of OFDI in developing countries can be provided.

3.1.1 – The choice of Brazil and India

For this research I have selected one specific group of developing countries to focus my analysis on, namely emerging markets. The reason why I have chosen to focus on emerging markets is because, as mentioned in the literature review (e.g. by Luo et al. 2010 and Sauvant, 2005), they have experienced some of the most substantial increases in OFDI among developing countries in the past decades. Thus, because they are experiencing such significant increases, it would be informative to understand more in depth how and why these increases have taken place.

To clarify, it is first important to define what the term emerging markets means in this study. In sum, emerging markets could be defined here as those developing countries – or economies – that are experiencing rapid economic development, and therefore present certain characteristics similar to those of a developed economy. More formally, according to the definition by the Morgan Stanley Capital International’s Market Classification Framework, emerging markets are economies that present certain characteristics of a developed economy, but still do not meet all the economic standards (e.g. such as sustainability of economic development) to be considered a developed economy (MSCI, 2014, p. 1).

To narrow down my selection of countries to observe, I have chosen to focus on countries belonging to the BRICS (which comprises Brazil, Russia, India, China and South Africa). I have chosen the BRICS because this is an internationally known group of emerging economies. Thus there is an international consensus that these countries are emerging markets. To select the countries for my analysis, I have looked closely into the evolution of OFDI from the BRICS countries. The graph below illustrates this evolution.

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21 Figure 3.1.1.1 – Evolution of OFDI from BRICS countries (UNCTAD, 2014)

By analyzing the graph above, it is possible to see that Brazil presented the highest rates of OFDI until the 2000s. By the 2000s, Russia’s OFDI skyrocketed, followed by China that also experienced substantial increases by the mid-2000s. In comparison to these three countries, South Africa and India present more modest outflows of FDI, with India presenting the lowest rates during most of the years from 1980 until 2014.

Based on these observations, I have decided to focus my analyses on two countries that have presented significantly different levels of OFDI over the years. I have chosen India because this country presents the lowest rates, and Brazil because it presents high rates of OFDI since the 1980s. The reason why I have not chosen China or Russia instead of Brazil is mainly due to language barriers. While conducting a qualitative analysis on the institutional factors that might influence OFDI from these countries, I will have to analyse many documents, including policy documents and transcriptions of public speeches. Thus, due to the fact that I do not speak the local languages spoken in Russia and China, I believe I will be limited in my analysis if I select these countries. In the case of India and Brazil, however, documents are issued in Portuguese and English, and these are languages that I have a good command of.

0 100000 200000 300000 400000 500000 600000 700000 800000 OFDI sto ck (U SD m ill ion s) Year

OFDI Evolution from BRICS countries (1980 - 2014)

Brazil India South Africa China Russia

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22 My motivation to select countries presenting different rates of OFDI is mainly because both of them have experienced significant increases in economic development; however, whereas one presents high rates of OFDI over the years, the other presents somewhat more modest increases since the 1980s. My goal, therefore, is to find out whether some institutional and economic factors could possibly explain the historical variation of OFDI between these two countries.

To summarize, in terms of unit of observation and unit of analysis, it can be said that the units of analysis of this research are Brazil and India. The unit of observation refers to the time-space element for which my observations will be conducted. In this case the units of observation will be country-by-year. This is because in this research I will carry out observations on Brazilian and Indian OFDI within the timeframe between 1980 and 2014. This timeframe has been chosen because of data availability. For instance, variables indicating variations of OFDI are only available from 1980 until 2014.

3.1.2 – Data selection and hypotheses

For this research data referring to the variables will be collected in two different ways. Firstly, quantitative data will be collected for the analysis of the economic factors that could possibly have a relation with OFDI. Secondly, qualitative data will be collected for the analysis of the institutional factors that might possibly affect the occurrence of OFDI from Brazil and India.

3.1.2.1 – Data indicating economic factors that could have a relation with OFDI

The first part of the case studies on Brazil and India will elaborate on the possible economic factors that can be related with their levels of OFDI. This part of the case studies will be similar to those studies conducted by scholars testing the extended version of the IDP hypothesis. The dependent variable that I will use is OFDI stock. This variable has been used in many studies testing the IDP hypothesis (e.g. Liu et al 2005; Stoian, 2013). The source of this variable is the UNCTAD. According to the UNCTAD’s definition, OFDI stock is “the value of the share of capital and

reserves (including retained profits) attributable to the parent enterprise investing abroad, plus the net indebtedness of affiliates to the parent enterprises” (UNCTAD, 2014).

The first independent variable being used in this part of the analysis will be GDP per capita. This variable will be used in this research because it is the main – and original - variable that must be

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23 analyzed under the theory proposed by the IDP hypothesis. As I explained in the literature review, there is a consensus among many scholars that variations in GDP per capita directly reflects variations in economic development in a state. This is mainly because GDP per capita indicates the gross domestic product generated in a country in relation to its citizens. Data on this variable will be collected from the database of the World Bank (World Bank, 2015). Based on the IDP hypothesis which suggests that an increase in economic development can lead to an increase in OFDI, the first hypothesis that I will raise here is the following:

H1: An increase in GDP per capita coincides with an increase in levels of OFDI in Brazil and India.

The second independent variable has also been used by Stoian (2013) when she expanded the IDP hypothesis in her study. This variable is ‘expenditure on research and development’. This variable is based on the idea that as a country develops economically, it will invest more on research and development (R&D) so it can keep developing further. If a country experiences improvements in R&D, its domestic companies can benefit from it by incorporating these improvements into their operations (e.g. companies can benefit from advances in science and technology that occurred through improvements in R&D). As a consequence of these improvements, domestic companies can grow in scale and can be more able to expand their operations overseas to enhance their access to foreign resources and markets and possibly increase their sources of profit. The variable ‘expenditure on research and development’ refers to both private and public expenditures, and the source of this data is the World Bank (World Bank, 2015) and the UNCTAD (UNCTAD, 2014). The numerical values used in this research have been calculated by me, by using the World Bank’s variable “expenditure on R&D as a percentage of GDP”, and the UNCTAD’s variable “Country GDP”. For this case, the hypothesis that I will test will be the following:

H2: An increase in expenditures on research and development coincides with an increase in levels of OFDI in Brazil and India.

The third independent variable has been used by many scholars testing the extended version of the IDP hypothesis (e.g. Stoian, 2013; Liu et al. 2005). This variable is inflows of FDI. For this research I will use gross inflows of FDI instead of net inflows. This is mainly because I want to focus on the total amount of foreign direct investments that have occurred in India and Brazil on

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24 an annual basis, without deducting the liabilities of those foreign firms investing in these countries. Data on this variable will be collected from the UNCTAD (UNCTAD, 2014).

According to Dunning et al. (2001), inward FDI is an important factor in the investment development path. As mentioned in the literature review, as the economy of a country develops, the market in that economy will be likely to grow, and investments for further development (e.g. investments in research and development) are also more likely to happen. These new local assets (e.g. expanded market and more technological improvements) make the home country more attractive to foreign firms. For that reason, foreign firms will be more likely to invest in that country through FDI. With more inward FDI, the home country can benefit as foreign firms can transfer their own assets to the home country (e.g. skills, technology, and expertise). Local firms in the home country can benefit from these transfers if they incorporate them into their operations. As a result, domestic firms enjoying more technology, skills, and expertise will be more competitive and consequently will be more likely to exploit their new assets through OFDI (Dunning et al, 2001). Under this rationale, the third hypothesis that I will test is the following: H3: An increase in inward FDI coincides with an increase in that country’s OFDI.

To test the three hypotheses presented above, I will conduct a quantitative analysis on the variation of the independent variables ‘GDP per capita’, ‘expenditure on R&D’, and ‘inward FDI’ and the dependent variable ‘OFDI’. My goal will be to find out whether or not the variations of those variables coincide as I suggested in the hypotheses.

3.1.2.2 – Data indicating institutional factors that could possibly have a relation with OFDI

The second part of the case studies on Brazil and India will be based on the possible institutional factors that could have a relation with the levels of OFDI in both countries. This part will receive greater attention as I intend to elaborate in depth on the roles that public institutions and the actors within them seem to play in the field of outward FDI in the two countries.

The first independent variable that I will use in this part of the analysis is based on the study by Luo et al. (2005) and Khoon & Wong (2011). In their studies, these authors suggest that the adoption of policies liberalizing capital outflows have contributed to an increase in the levels of OFDI in Malaysia and China. Because this seems to be an important variable indicating a government’s willingness to enable firms to engage in OFDI, I will include the variable ‘existence

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25 of policies easing capital controls for OFDI’ in this research. To have access to data on this variable I will use sources such as: (1) policy documents from the governments of Brazil and India (especially from the Central Bank of Brazil and the Reserve Bank of India), (2) speeches from politicians from both countries (often available online), and (3) direct communication with relevant institutions in both countries via e-mail. One of my goals here is to find out whether or not such policies have been adopted in these countries, and which national institutions have contributed to the development of such policies. My main goal, however, is to test the following hypothesis, which suggests that such policies could lead to an increase of OFDI:

H4: The existence of national policies easing capital controls for OFDI activities coincides with an increase in OFDI.

The second independent variable is the ‘presence of pro-market policy-makers holding central positions in strategic policy-making institutions’. This variable has not been used in the researches mentioned in the literature review; however, I will employ it here because in this research I want to include an analysis on the actors (i.e. policy-makers) that could possibly have an influence on the occurrence of OFDI in India and Brazil. My goal is to find out whether or not the pro-market inclinations of key policy-makers could possibly have an influence on the occurrence of OFDI in the countries being observed. The term ‘pro-market policy-makers’ refers to the idea that these policy makers support the creation of an economic environment less restrictive to the conduction of businesses. That is, economic transactions can, to a larger extent, be regulated by the market itself and not so much by government regulations and interventions. Another term in this variable is ‘strategic policy-making institutions’. In this research, this term stands for those public institutions that have the authority to create and/or approve policies that can directly govern OFDI activities in Brazil and in India. Finally, the term ‘central positions’ refers to those policy-makers who have great authority to create and pass policies within the strategic policy-making institutions. In this research, actors holding central positions are the governors (e.g. presidents) of those ‘strategic policy-making institutions’.

To analyze this variable, I will first identify those public institutions that have a more direct influence on OFDI policy in India and in Brazil. After that, I will then conduct a research on the actors that have hold the highest positions in those institutions during the period ranging from 1980 until 2014. To obtain information on this variable I will analyze texts and public speeches that

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26 explain the political views of those central actors. Sources for such texts and public speeches are, for instance, online pages of policy-making institutions (e.g. Central Bank of Brazil, Reserve Bank of India, Indian Ministry of Commerce, etc.).

My rationale for this specific variable is that, if key policy-makers are more pro-market, they will provide more freedom for local businesses to carry out their OFDI activities. Thus, with this line of thought, the hypothesis that I will be testing is the following:

H5: The presence of pro-market makers holding central positions in strategic policy-making institutions coincide with an increase in the occurrence of OFDI in Brazil and in India.

The third independent variable that I will use is ‘the existence of public financial institutions providing low-interest loans to firms engaging in OFDI’. The reason why I chose to use this variable is because I want to find out whether or not public financial institutions in Brazil and India offer financial services to assist local firms in their overseas direct investments. This variable is based on the studies by Luo et al. (2010) and Sauvant (2005). These authors have mentioned in their researches that many developed countries and China have such financial services in place to assist their local firms to invest abroad. In fact, Luo et al. (2010) have suggested that the provision of low-interest loans by national governments are important tools that can enable local firms to engage in OFDI. Based on this argument, I want to find out in this research whether or not India and Brazil also have institutions offering such services, and also whether or not these services seem to have an influence on levels of OFDI in these countries. To obtain data on this variable I will look for information on previous researches in the field, and on documents by the government in Brazil and India. This variable will be tested through the following hypothesis:

H6: The presence of institutions providing low-interest loans to firms engaging in OFDI coincides with an increase in OFDI.

Finally, the fourth independent variable that I will use is ‘the existence of policy prescriptions by the IMF and/or World Bank promoting the deregulation of OFDI activities in Brazil and India’. This variable has not been used in the studies mentioned in the literature review; nevertheless, I will employ it here because I want to find out whether or not international policy-making institutions could possibly have a relation with the occurrence of OFDI in Brazil and India.

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27 When it comes to economic-related policies, the IMF and the World Bank have great international influence. These institutions often provide loans to developing countries to assist them in their economic development, and in fact, both India and Brazil have already borrowed from at least one of these two institutions in the past decades (IMF, 2015; IMF, 2015 a). Both the IMF and the Wold Bank can have an influence on national policy-making because the loans that they provide are often followed by policy prescriptions (named by them as adjustment policies).

In short, these organizations provide loans to a country under the condition that that country will adopt certain adjustment policies which, according to the IMF and the World Bank, are aimed at establishing economic stabilization and development in the country receiving the loan (IMF, 2006). These international institutions, however, have clear pro-market inclinations. For instance, their policy prescriptions often include the liberalization of investment and trade policies, as well as the abolition of anti-competitive policies (IMF, 2006 a).

In sum, both institutions have pro-market inclinations, and both have a history of loan provision to India and Brazil. Thus, considering their loan conditionalities and their inclinations, it could be possible that they have prescribed policies aimed at enabling OFDI in these countries. Through this research, therefore, I want to find out whether or not these institutions have a possible relation with the occurrence of OFDI in India and Brazil. To obtain information on this, I will analyze previous researches in this field and will communicate directly with the institutions via email. The hypothesis that I aim to test here is the following:

H7: The adoption of adjustment policies from the IMF and/or World Bank promoting the deregulation of OFDI activities in Brazil and India precede an increase in OFDI in these countries.

Finally, the dependent variable that I will use in this part of the research will be the same that I will use to test the hypotheses related to the economic factors that can influence OFDI. That is, the dependent variable will be OFDI stocks, and the data source is the UNCTAD.

To test the hypotheses above, I will observe whether or not the numerical variable ‘OFDI’ varies as I predict in the hypotheses (H4, H5, H6, H7) during the timeframe between 1980 and 2014.

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3.1.3 – Considerations about replicability

To enhance the transparency of this research, and also to increase the chances that a study replicating this one would generate the same results, all sources of information used in this research will be made available to the reader. Most of the sources of information used in this research are policy documents, and some of them are numerical data for the quantitative analyses. The sources of these information will be clearly mentioned in this research (through standard referencing). As the previous sub-section has shown, however, some data for this study will be obtained through direct communications with representatives of institutions in Brazil and India via e-mail. To give to the reader access to this information, all emails exchanged between myself and representatives of institutions in India and Brazil will be available upon request. This source of information will be referred to in the text as ‘private communications’ together with the name of the institution/representative of institution.

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4. Case study: India

This chapter will present my observations on Indian OFDI. Throughout this case study I aim to present all the information that is needed in order to test the hypotheses mentioned in the previous chapter for the country of India. For the purpose of this research, this case study will be presented as follows: firstly, it will start with a brief introduction on the Indian economy and outward foreign direct investments. This first part will present some of the main characteristics of OFDI in the country, including growth rates, main drivers, countries of destination, and the sectors in the Indian economy most engaged in OFDI. After that, the second and third sections of this case study will elaborate more extensively on the economic and institutional factors that could possibly have a relation with the occurrence of OFDI in the country.

4.1 – Introduction: Indian economy and OFDI

India is a federal parliamentary republic located in southern Asia. More recently, the country stood out as one of the fastest growing economies in the developing world. In the past decade alone, India’s GDP grew from USD 715,459 million in 2004 to USD 2,041,085 million in 2014 (UNCTAD, 2014 a). India has a population of 1.252 billion citizens, which makes it the second most populous country in the world. Given its significant economic growth and massive population, it is no surprise that India, in the past years, has been considered worldwide as an emerging market (Koesterich, 2015; Holmes, 2015).

In terms of OFDI, since the mid-2000s an increasing number of Indian firms have engaged in overseas direct investments, indicating their growing participation in a global economy (Khan, 2012). As a result of that, levels of OFDI from India have increased significantly. For instance, in 2000 the volume OFDI from India totaled USD 1,733 million, and in 2005 this amount rose up to USD 9,741 million. Finally, by 2010 in totaled USD 96,901 million (UNCTAD, 2014).

According to a study conducted by Sauvant (2005, p.668-669), some of the main motivations behind the increasing participation of Indian companies in OFDI activities include, for instance, enhanced access to foreign technology, skills, distribution networks, and markets. Moreover, the author has also suggested that the security of natural resources also leads many Indian firms to operate abroad, particularly in resource-rich countries. In this case, their main motivation is to secure supplies of natural resources which are being increasingly demanded at home.

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30 In terms of industry sector, the Indian firms most engaged in OFDI are those active in the transport, storage and communication services sector (30.4% of total OFDI). Other sectors such as manufacturing, and agriculture and mining are also significant, corresponding respectively to 25.8% and 16.5% of Indian OFDI (Care Ratings, 2014). The table below illustrates in more details the distribution of Indian OFDI by sector in US dollars (April 2013 – Jan. 2014).

Table 4.1.1 – Indian direct overseas investments by sector (April 2013 – Jan. 2014)

Sector Total invested (in USD million)

Transport, storage and communication services 8,906

Manufacturing 7,560

Agriculture and mining 4,826

Wholesale, retail trade, restaurants and hotels 2,903 Financial, Insurance and business services 2,351

Construction 1,394

Community, social and personal services 1,268

Miscellaneous 56

Electricity, gas and water 23

TOTAL 29,294

Source: (Care Ratings, 2014)

In terms of country of destination, Indian firms invest predominantly in the Netherlands (28.8% of total OFDI), Singapore (15.2%), and the British Virgin Islands (12.6%). (Care Ratings, 2014). The table below illustrates Indian OFDI by country (April 2013 – January 2014).

Table 4.1.2 – Indian direct overseas investments by country (April 2013 – Jan. 2014)

Country Total investments (in USD) Share in total (%)

Netherlands 8,427 28.8

Singapore 4,454 15.2

British Virgin Islands 3,687 12.6

Mauritius 3,029 10.3

United States of America 2,052 7.0

United Arab Emirates 1,446 4.9

United Kingdom 1,356 4.6 Switzerland 994 3.4 Azerbaijan 814 2.8 Cayman Island 523 1.8 Hong Kong 309 1.1 Cyprus 275 0.9 Saudi Arabia 269 0.9 Belgium 180 0.6 Oman 121 0.4 TOTAL 29,294 100.0

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31 Thus far, this chapter has shown that levels of OFDI from India have increased substantially since the 2000s, and, in general, Indian firms engaged in OFDI tend to invest both in developing and developed countries in Asia and other continents across the globe. In view of the substantial growth of Indian OFDI, we can raise the following question: what are the factors that could possibly have an influence on the occurrence and evolution of Indian OFDI over the past decades? To address this question, the remainder of this chapter will present some of these factors.

4.2 – Economic factors that could have an influence Indian OFDI

In the scholarly literature, economic development is often mentioned as the prime explanatory factor for OFDI (Stoian, 2013). This rationale is proposed by the IDP hypothesis, which suggests that as a country develops economically, its firms tend to develop as well and, consequently, they expand their operations overseas to obtain new sources of productivity and profit (Stoian, 2013). As mentioned in the previous chapter, for this research the IDP hypothesis will be tested using three economic factors (i.e. variables), namely GDP per capita, investments in R&D, and inward FDI. If the IDP hypothesis is correct, we should see that the variations of the aforementioned variables present continuous similarities with India’s variations of OFDI. The next paragraphs, therefore, will contain some observations on these three economic factors together with OFDI from 1980 until 2014. The graph that follows illustrates India’s variations of GDP per capita and OFDI:

Figure 4.2.1: Indian GDP per capita and OFDI: 1980 – 2014 - Sources (UNCTAD 2014; World Bank 2015)

As the graph shows, Indian levels of OFDI did not always vary according to the country’s variations of GDP per capita. For instance, whereas GDP per capita presented a moderate, but

0 200 400 600 800 1000 1200 1400 1600 1800 1 10 100 1000 10000 100000 1000000 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 In d ian G DP p er cap ita (cu rre n t U SD) In d ian OFDI (U SD m ill ion ) Year

Indian GDP per capita and OFDI (1980 - 2014)

OFDI India

Outward foreign Direct investment from Developing Countries. A study on the economic and institutional factors that can have an influence on the occurrence of outward FDI from India and Brazil