ABSTRACT
This thesis analysis, empirically, the trade patterns and investment relations of India with the EU and Africa over a time period from 1990 until 2008.
Since the most recent reforms in the early 1990s, India has had notable growth rates. Furthermore, Indian exports to and imports from the rest of the world have been rising extensively since 2002.
Trade with India’s largest trading partner, the EU, as percentage of total Indian trade with the world has been declining since 1990. This could be attributed to diversion of trade partners, however because Indian trade is rising excessively, it could also mean that Indian is developing a more diverse group of trade partners, within and beyond the EU. On the other hand, even though the percentages are still small, the Indian trade as part of the total EU trade with the world is becoming larger.
This implies that the EU is not only an important trading partner of India but also visa versa.
Even though the exports towards Africa as a percentage of total Indian exports to the world have been small, they are rising. This implies that the export relation between Africa and India is increasing in amount and in importance, and that the import relation is only increasing in amount, but that imports are diversifying over more areas, as was the case for the EU.
The reforms in 1991 have caused an easier in- and outflow of FDI, and both inward and outward FDI has been increasing amongst the European countries in the dataset, however these amounts stay small. Indian investments towards Africa are significantly apparent and are concentrated towards natural recourses and tax havens.
The pattern that can be seen in general is that investments from India in the rest of the world are mainly focussed on natural resource investments and tax opportunities.
This thesis has extended the literature on more detailed research on individual
country level and on a more general level, regarding the influence and development of
the trade patterns and investment relations of India with the EU and Africa.
TABLE OF CONTENT
ABSTRACT 3
ABBREVIATIONS 6
BACKGROUND 7
I. LITERATURE REVIEW 11
II. TRADE PATTERNS AND INVESTMENT RELATIONS II.1 Trade patterns and investment relations of India
II.2 Trade patterns and investment relations between India and the EU II.3 Trade patterns and investment relations between India and Africa
16 16 18 20 III. METHODOLOGY
III.1 Line of reasoning III.2 Conceptual Model
23 23 24 IV. DATA
IV.1 Dataset IV.2 Variables
26 26 32 V. RESULTS
V.1 Trade patterns and investment relations between India and the EU V.2 Trade patterns and investment relations between India and Africa V.3 Comparing the results from both datasets
34 34 47 58 VI. CONCLUSIONS
VII.1 Summary VII.2 Conclusion VII.3 Limitations
VII.4 Recommendations
61 61 62 66 67
VII. A GLANCE AT THE FUTURE 68
REFERENCES 71
APPENDICES III. India III. Trade III. Investment
77
78
81
94
FIGURES, GRAPHS AND TABLES
iFigure 1. Conceptual Model………...
Graph 01. India-UK trade pattern………..
Graph 02. India-UK investment relation………
Graph 03. India-Germany trade pattern………...
Graph 04. India-Germany investment relation………..
Graph 05. India-France trade pattern………...
Graph 06. India-France investment relation………...
Graph 07. India-Sweden trade pattern………...
Graph 08. India-Sweden investment relation………...
Graph 09. India-Italy trade pattern………...
Graph 10. India-Italy investment relation………..
Graph 11. Indian trade with EU………...
Graph 12. India-South Africa trade pattern………
Graph 13. India-Nigeria trade pattern………....
Graph 14. India-Tanzania trade pattern………...
Graph 15. India-Mauritius trade pattern……….
Graph 16. India-Sudan trade pattern………..
Graph 17. Indian trade with Africa (all countries)………...
Table 01. Top five countries of Indian imports from the EU (1990-2000-2008)………..
Table 02. Top five countries of Indian exports to the EU (1990-2000-2008)………...
Table 03. Top five countries of net inward FDI flows from the EU to India (1998-2002-2007)…..
Table 04. Top five countries of net outward FDI flows from India to the EU (1998-2002-2007)…
Table 05. Top ten countries of Indian imports from SSA (1990-2000-2008)………...
Table 06. Top ten countries of Indian exports to SSA (1990-2000-2008)……….
Table 07. Top 5 export and import commodities of India to/from the UK (1990-2008)…………..
Table 08. Top 5 export and import commodities of India to/from Germany (1990-2008)………...
Table 09. Top 5 export and import commodities of India to/from France (1990-2008)…………...
Table 10. Top 5 export and import commodities of India to/from Sweden (1990-2008)………...
Table 11. Top 5 export and import commodities of India to/from the Italy (1990-2008)………...
Table 12. Indian trade with EU (all 27 member states included)………..
Table 13. Top 5 export and import commodities of India to/from South Africa (2008)…………...
Table 14. Top 5 export and import commodities of India to/from Nigeria (2008)………
Table 15. Top 5 export and import commodities of India to/from Tanzania (2008)………...
Table 16. Top 5 export and import commodities of India to/from Mauritius (2008)………
Table 17. Top 5 export and import commodities of India to/from Sudan (2008)………...
Table 18. Indian trade with Africa (all countries)………..
25 35 36 37 39 39 41 41 43 43 45 46 48 50 52 53 55 57 27 27 27 28 30 30 36 39 41 43 44 46 49 51 53 54 56 57
i Figures, graphs, and tables with an ‘I’, ‘II’, or ‘III’ are found in the appendices
ABBREVIATIONS
CACPA Comprehensive Cooperation and Partnership Agreement ECU European Currency Unit
EEC European Economic Community EIU Economist Intelligence Unit
EU European Union (consists of 27 member states: Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom)
FDI Foreign Direct Investment FTA Free Trade Agreement
FY Financial Year (the financial year in India runs from 1
stof April until the 31 of March)
GDP Gross Domestic Product
GSP Generalized System of Preferences IMF International Monetary Fund IT Information Technology
ITES Information Technology Enabled Service JTF Joint Task Force
R&D Research and Development
SSA Sub Saharan Africa (consists of 48 countries: Angola, Benin, Botswana, Burkina Faso, Burundi, Cameroon, Cape Verde, Central African Republic, Chad, Comoros, Democratic Republic of Congo, Republic of Congo, Côte d’Ivoire, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Gabon, The Gambia, Ghana, Guinea, Guinea-Bissau, Kenya, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritania, Mauritius, Mozambique, Namibia, Niger, Nigeria, Rwanda, Säo Tomé and Principe, Senegal, Seychelles, Sierra Leone, Somalia, South Africa, Sudan, Swaziland, Tanzania, Togo, Uganda, Zambia, Zimbabwe) OECD Organisation for Economic Co-operation and Development OFDI Outward Foreign Direct Investment
UAE United Arab Emirates
UK United Kingdome Great Britain and Northern Ireland
US United States of America
BACKGROUND
In recent years India has been the focus of international attention. This, not only for its massive and ever growing population, or for being the largest democracy in the world, but mainly relating to its remarkable growing and booming economy.
Since the most recent reforms in the early 1990s, marking the start of its economic liberalization in 1991, India has had notable growth rates. This started with a steady average growth of around 6% in the early years, continuing with a rate that exceeded 8% since 2004, and reached a height of 9.82% in 2006. After this peak in 2006, there was a little decline in 2007, and a 2% downfall in 2008, which can be explained by the ongoing global financial crisis (see graph I.1; IMF, 2009; EIU, 2008).
When these figures are seen in light of the period right after India’s independence (1947), which was marked by growth rates of 3-4% per year, the
‘Hindu rate of growth’, India can now be grouped together with the world’s fastest growing economies (Goldman Sachs, 2007; Om, 2007).
The economic growth has had, amongst other aspects, a major impact on the reduction of poverty levels in India. The level of people living below the poverty line (people living on one dollar a day) has declined from 93% in 1985 to about 30% in 2008 (IMF, 2009). Furthermore it is expected that Indian incomes will triple over the next 20 years, which will cause an extreme boost in India’s middle class (Kumar, 2009).
The economic growth makes India a significant player in the world economy, and its actions influence the other economies of the world (Geda & Meskel, 2008).
India is, from an economic perspective, linked to other economies through its trade
patterns and investment relations (Jenkins & Edwards, 2006). As can be seen in
“India indeed happens to be a fascinating nation - the more one sees it, the more
one gets mesmerized by its sheer diversity. And many Indians who see India closely
wonder about the true identity of this country in the global landscape of nation-
states.” (European Institute for Asian Studies, 2007, pg. 5)
graphs II.1 & II.2 and tables II.1 & II.2, Indian exports to and imports from the rest of the world have been rising extensively since 2002.
It is argued that Foreign Direct Investment (from hereon FDI) is an important source of capital, management, and technology in India. FDI can give more diffusion in the Indian economy through knowledge spillover and it will enhance India’s growth rate (Sahoo & Mathiyazhagan, 2003). FDI flows in India have seen a major increase since 2002/2003 (see graph III.1). With the relaxation of procedures and liberalization of FDI in India, the economic growth, and an interesting investment regime, many international companies are interested in investing in India.
The EU is India’s largest trading partner and main source of inward FDI.
India-EU trade has seen a striking growth over the years, from €4.4 billion in 1980 to over €55 billion in 2007 (European Commission, 2007; EU Business, 2007), which currently represents for over 20% of India’s exports and imports (Indian Ministry of Commerce & Industry, 2008).
EU investment in India has increased sharply in the recent years. In 2004 India became one of the EU's "strategic partners". In addition, it was agreed upon to further increase the bilateral trade en economic cooperation, and to decease barriers to trade and investment.
Now India is integrating into the world economy, it becomes clear that the least developed countries will be affected in multiple ways. The size, growth rates, demand for natural resources, and growing economic and political power of the country caused a re-shape of the influent economies in the world, which will give both competition and opportunities to all sorts of players in the world economy (Goldstein et al, 2006).
Due to its massive growth, India is searching for new sources of natural resources, particularly power (BBC News, 8
thApril 2008). Moreover, India also has swiftly modernizing industries and a growing middleclass with increasing purchase power. This leads not only to a rising demand in natural resources, but also commodities such as processed goods, manufactured goods, foods, and even tourism.
“The acceleration of the South-South trade and investment is one of the most
significant features of recent development in the global economy” (Broadman, 2007,
pg 1). Africa, with its labour intensive capacity and availability of natural resources is therefore an interesting trade partner for India (Broadman, 2007).
India has had trade relations with Africa for centuries, and trade increased significantly since the 1990’s (Jenkins & Edwards, 2006). Nowadays, Asia receives about 27% of Africa’s exports (which was 17% in 2000). This is almost at the same level of Africa’s trade with the EU and the US (Broadman, 2007).
It becomes clear that for India, both the EU and Africa are significant partners in its economic growth process and its establishment as an important player in the world economy. The EU is India’s largest trading partner and main source of FDI. On the other hand India’s imports from Africa have risen sharply, mainly regarding natural resources (Broadman, 2007). Also exports from India to Africa are rising, which, in the long run, could predict a bilateral trade relation and can be beneficial for both countries.
Previous research regarding India and its position in the world economy focused on: ‘where are they now, what is their future, and what needs to change in order to keep on growing’ (o.a. Callen & Towe, 2001; Chakraborty & Nunnenkamp, 2008; Fisher, 2002; Kumar, 2009; Mahtaney, 2007; Om, 2007; Rothermund, 2008).
Also the relation of India and Africa has been in the scope of resent research (o.a.
Broadman, 2007; Gada, 2006; Gada & Meskel 2008; Goldstein et al., 2006; Jenkins &
Edwards, 2006; Stevens & Kennan, 2005). But as was mentioned in Jenkins &
Edwards (2006), Geda (2006), and Goldstein et al (2006), research on the impact of
India on Africa is limited. The majority of the research regarding the relation between
the ‘Asian drivers’ (i.e. India and China) and Africa, is especially focused on China
(Kaplinsky et al, 2006; Stevens & Kennan, 2005; Taylor, 2009). Furthermore, the
India-Africa relation and the impact of India on Africa and visa versa is mostly
combined with China, which will give a somewhat incorrect representation of the
India-Africa relation since trade and investment figures are much higher regarding the
China-Africa relation compared to the India-Africa relation. Moreover, as was
mentioned in Goldstein et al. (2006, pg 40), the “Africa-China and Africa-India trade
patterns are quite different”.
Therefore in order to fill this gap, the scope of this research will be an empirical analyzes in order to represent the trade and investment relations of India with the EU & Africa. How have these relations been developing over time? What seem to be the (economic) consequences for all three countries? Following this line of reasoning, the main research question will be:
In what way have the trade patterns and investment relations of India with the EU
and Africa changed over time, and how do these relations influence these regions
separately?
I. LITERATURE REVIEW
Because of its growing importance in the world, India is in focus of research all over the world. However still there is not much work available with empirical data which is mainly focused on India. Most research combines China and India, or even Asia as a whole to show their [India and China] upcoming importance in the world.
Nevertheless several research has been done regarding FDI and its influence on the Indian economy and FDI coming from India (a.o. Bhat et al, 2004; Chakraborty &
Nunnenkamp, 2008; Chakraborty & Basu, 2001; Nunnenkamp & Stracke, 2007;
Pradhan, 2003, 2005, 2007, 2008; Sahoo & Mathiyazhagan, 2003), even though there is a “lack of sufficient disaggregate FDI data” (Broadman, 2007; Nunnenkamp &
Stracke, 2007, pp. 4; Chakraborty & Nunnenkamp, 2008; Pradhan, 2003).
The first part of this literature review is focussed on economic growth and its relation with trade and FDI. After that an overview is given regarding the recent literature of India and its relation with Africa.
Economic growth has been related to trade and FDI flows in various researches, and has received increasing attention from policy makers. Especially the contribution of FDI to growth has been debated extensively in many researches (a.o.
Barro & Sala-I-Martin, 1995; Batten & Vo, 2009; Borensztein et al., 1998; De Mello, 1997; Hermes & Lensink, 2003; Liu et al., 2009; Sahoo & Mathiyazhagan, 2003;
Wang & Wong, 2009; Yao, 2006). Various literature emphasises the positive impact which FDI may have on economic growth, through the introduction of new technology and an injection of capital which in turn leads to higher productivity of capital an labour (Hermes & Lensink, 2003), and enhanced efficiency (Liu et al, 2009). However Alfaro (2003) argues that FDI in the primary sector tends to have a negative effect on growth, while investments in the manufacturing sector have a positive effect.
Barro & Sala-i-Martin (1995) mention that the economic growth rate is
dependent on the extent to which countries can adopt and implement new
technologies which become available. Liu et al. (2009) mention the importance of
examining the linkage between trade, FDI and economic growth for Asian economies,
to make clear whether the enormous economic growth in that region is driven by trade
and FDI or whether there is a mutual impact between economic growth, FDI and
trade. They conclude that both trade and FDI are important for economic growth, however economic growth can also influence trade and FDI. They also conclude that GDP growth and intensive external trade act as the main determinants of inward FDI into the region.
Borensztein et al. (1998, pp.117) state that “FDI is an important vehicle for the transfer of technology, contributing to growth in a larger measure than domestic investment”, however, only when the host country has a minimal level of human capital. Thus, there is a strong positive relation between FDI and the education level in the host country. Liu et al. (2009) conclude that export, import and FDI have beneficial effects on economic growth of certain Asian economies. Yao (2006), names export and FDI as having a strong and positive effect on economic growth. However Sahoo and Mathiyazhagan (2003) state that export plays a larger role in economic growth than FDI (for the Indian economy). However, Batten & Vo (2009), Chakraborty & Vasu (2001), and Narula & Porteili (2004), conclude that FDI has a strong positive impact on economic growth. Hermes and Lensink (2003) say that in order for FDI to have a positive impact on economic growth, the financial system of the host country needs to have a certain level of development.
Chakraborty & Basu (2009) mention that for India the relation between growth and FDI is more a ‘one-way-street’, meaning that GDP growth causes a rise in FDI, in contrast to other Asian countries where there is a reciprocal relation between growth and FDI. Moreover, Liu et al. (2009) conclude that for India there is only a one way causal link between imports and GDP, or in other words, an import led growth, in contracts to the other economies in Asia, where there is a mutual effect between trade, FDI and growth.
According to Chakraborty and Nunnenkamp (2008) it is likely that the major FDI inflow has supported the economic growth and also poverty alleviation in numerous states in India. However, Nunnenkamp & Strake (2007) also mention in their research that FDI is likely to widen the income disparity. This is mainly cause by the concentration of FDI in only a few states, which hinders the favourable effects of FDI from spreading across the country. Moreover, the impact of FDI on growth differs significantly per sector.
To foster growth, India should maximize the benefits of FDI by improving the
local FDI conditions (Chakraborty & Nunnenkamp, 2008). Furthermore Rothermuller
(2008) concludes that even with the 9 percent growth rate of the recent years and the
potential for even larger growth rates in the upcoming years, India needs to tackle the main factors that will hamper this growth. First of all India needs to resolve its water scarcity issues. Also problems with the power supply and terrible infrastructure need to be faced and solved.
As can be seen from the above, economic growth, trade and FDI have been related to each other in many ways. Many researches conclude that there is a certain influence of growth on trade and FDI and visa versa. Now relating this to India, the EU is India’s largest trading partner and main source of FDI. However (empirical) research with respect to the India-EU relation, focussed on trade and investment effects, is scarce.
Furthermore, Africa is becoming a more important partner of India. Both investment and trade have been rising tremendously between these regions. Moreover, as was said by Broadman (2007), the ‘south-south trade’ is a noteworthy development in the global economy. This can be seen through the numerous researches that have been done regarding this matter (o.a. Broadman, 2007; Gada, 2006; Gada & Meskel 2008; Goldstein et al, 2006; Jenkins & Edwards, 2006; Stevens & Kennan, 2005). But as was mentioned in Jenkins & Edwards (2006), Geda (2006), and Goldstein et al (2006), research on the impact of India on the African region is limited. The majority of research regarding the relation between the “Asian drivers” and Africa is especially focused on China (o.a. Stevens & Kennan, 2005; Taylor, 2009). Furthermore, most research regarding the relationship between India and Africa is from the African perspective, and focussing on the impacts of this relation for Africa.
The latest and most elaborate study regarding the South-South trade with a
special focus on China and India is a World Bank study by Broadman (2007). In his
study, Broadman (2007) analyses two aspects. First, the evolution of patterns and
performance of trade and investment flows, between Africa and Asia, and in more
detail China and India. Secondly, the most important impacts on Africa of its trade
and investment relations with China and India. The main findings are that investment
and trade activities by China and India with Africa can ease the continents ability to
exploit the opportunities offered by trade in global supply chains. However, also in
this report several aspects are put forward that need more attention in order for both
countries [Africa and India] to gain form this relation.
Also in this research the trade patterns and investment relations between India and Africa will be analyzed, as well as impacts of this relationship. However, this research is looking from the Indian perspective, focussing on the relations between India and the EU and Africa.
The growth of India can be challenging and also optimistic for Africa.
Broadman (2007) mentions that the major increase in African trade with Asia is mainly driven by exports to India and China. Moreover this has caused an increase in prices of many of Africa’s major export commodities. Furthermore, the literature defines complementary and competitive effects, which can both be direct or indirect (Jenkins and Edwards, 2005 & 2006). Concerning trade, these effects can be complementary when new export opportunities are created for African countries, because of the economic growth and increased openness of the Indian markets.
Competitive effects can be seen when imports from India displace local producers, without creating enough new jobs for the local population (Broadman, 2008). Both these effects can be seen as direct impacts. However there are also indirect impacts on trade because of the size of the Indian economy. These indirect impacts are complementary when terms of trade improve, which causes an increase in world prices of primary commodities. However when competition from exports from India [and African exports] is apparent in third markets, these indirect impacts are competitive.
Jenkins and Edwards’ (2006) findings with regard to the relationship between India and Africa, state that for some African countries the impacts of trade, FDI and competition in the third market should not be neglected and are likely to become more important in the future. However the ways in which Africa has been affected differs from country to country. Some, such as Angola, Nigeria and Sudan, are important exporters to India so that the major impact on them has been through the growth of exports. Also Goldstein et al. (2006) conclude that the growing economic power of India is already influencing the growth patterns of African countries and in particular the oil- and commodities-exporting countries. Moreover, some countries in Africa are redirecting a part of their trade and other relationships from their traditional partners to the Asian Drivers.
Gade and Meskel (2008) concluded that there is strong evidence that India has been
complementing to African manufactures from the third market in the early years of
the study (data taken over the period from 1995-2005). Furthermore, the overall third market impact of the Asian Drivers has been that of complementarity in the later years of the study period.
This research will focus on the progression of the trade and investment relationship of India with Africa [and the EU] and what impact India has on 5 specific countries in Africa. Thus this research will give a more detailed analysis of the India- Africa relation. Because, as was said by Jenkins and Ewards (2006), there is a need for more detailed research both on individual countries and at the level of particular value chains in order to trace through the impacts within Africa of the growing integration of India in the global economy.
The next chapter will give a more detailed description of the trade and
investment relations of India in the literature, with a special focus on the India-EU and
the India-Africa trade patterns and investment relations.
II. TRADE PATTERNS AND INVESTMENT RELATIONS
The massive economic growth of India in the past years makes India a significant player in the world economy. Its actions influence the other economies of the world.
In the following chapter an overview is given regarding the sequence of trade and investment in India, and a more focused view on the progression of the India-EU and the India-Africa trade patterns and investment relations.
II.1 Trade patterns and investment relations of India
Before 1991, India was marked by the lowest growth rates recorded in the history of India, this period was termed the ‘Hindu rate of growth’ (Goldman Sachs, 2007).
Between 1990-1991, India faced political and economic turmoil. The rise in oil prices and the downfall of the Soviet Union, which was by then a major trading partner and key source of foreign aid, led to a rapid devaluation of the rupee, a depletion of India’s international reserves, and fears of a serious recession. As a response, Prime Minister Rao introduced in this period a number of major economic reforms, which marked the start of India’s economic liberalization. The initial reforms included a.o., the liberalization of international trade by reducing import tariffs, eliminating import restrictions, and opening up India to FDI (Martin & Kronstadt, 2007). Following this initial round of reforms, India’s GDP growth rose from 3-4% in the 1980s to an average growth of around 6% in the early 1990s, continuing with a rate that exceeded 8% since 2004, and reached a height of 9.82% in 2006. After this peak in 2006, there was a little decline in 2007, and a 2% downfall in 2008, which can be explained by the ongoing global financial crisis (see graph I.1; EIU, 2008; IMF, 2009).
Since these first reforms in 1991, India has made several changes in its
economic structure to ease the (international) trade relations and business
environment (Martin & Kronstadt, 2007). Since 2003, India can be grouped together
with the fastest growing major economies of the world, which lead to a rapid increase
in per capita income, demand, and integration with the global economy (Goldman
Sachs, 2007).
A major part of India’s growth after the restructuring is caused by the expansion of its manufacturing and service sectors. Nevertheless still about 65% of Indians live on agriculture and this continues to be an important sector (The Economist, 2008; Mahtaney, 2007).
The in 2004 adopted Foreign Trade Policy has resulted in an increase in trade activities and has generated additional employment of almost 14 million people. Due to this Foreign Trade Policy, India’s exports are more than doubled in the last four years. Indian trade has huge growth potential. At the moment India accounts for only 1.5% of service trade in the world, and only 1% of global merchandise trade, however, 1/6
thof the world population is Indian. Furthermore, India’s remarkable economic growth rate is mainly driven by domestic demand and not by exports as is the case with for example China (European Commission, 2007).
In order to tackle the issues hampering growth in trade, a Joint Task Force (JTF) is being set up. This JTF will look at the development of high quality infrastructure to facilitate trade, trade facilitation through Electronic Data Interchange to match world-class standards, the development of global manufacturing hubs in certain sectors, the development of global service hubs in IT, Knowledge Process Outsourcing, industrial design, R&D and product testing, the development of sector- specific skill-development institutes, and the encouragement of e-commerce through e-governance (India One Stop).
The minister of Indian Commerce and Industry pointed out in his speech at the UNCTAD XII United Nations Conference on trade and development that India wants to strengthen their trade and investment relations with its trading partners through knowledge advantages, large amount of skilled resources, young population, its potential of being a manufacturing hub and a base for high quality R&D (India One Stop, UNCTAD XII).
With the relaxations of procedures and liberalization of FDI in India, the
economic growth, and an interesting investment regime, many international
companies are interested in investing in India. These investments have mainly been in
the sectors services, computer hardware and software companies, construction and
real estate (Indian Brand Equity Foundation, 2008). Also infrastructure in India is an
opportunity for investment (UNCTAD XII).
Indian companies have been investing abroad for years, however only since the structural reforms in 1991 outward FDI has been rising (Pradhan, 2003;
UNCTAD, 2004a). The preferred regions for India’s outward FDI are Europe, US, Russia and Africa (Sauvant, 2005; Srivastava, 2007; Assocham).
Before some of the restrictions on outward FDI were lifted, manufacturing was the main destination of Indian outward FDI. However, after 1991, a shift towards the services became apparent, and outward FDI investments were mainly related to the service sector, and oriented towards developed countries (Chakraborty &
Nunnenkamp, 2008; Pradhan, 2003, 2005). However in the recent years, manufacturing has taken over again as main destination of outward FDI together with natural resources, although services remain important (Hansen, 2008). From 2003 onward, a major increase of Indian outward FDI is noted. Between 2005 and 2006 alone, outward FDI rose by 150% (see graph III.1).
Even though FDI in India has been increasing since the 1990’s, it cannot be compared to the amounts of overseas investments that countries in East Asia and China have been receiving. However the role or importance of FDI in the Indian economy has been growing. It has driven expansion in the service sectors, such as information technology and the financial sector. The IT sector, power and transportation industry and automobiles are among the sectors that have received the largest amount of FDI over the last years. The outsourcing boom revealed the enormous potential for export oriented FDI in the service sector (Mahtaney, 2007).
II.2 Trade patterns and investment relations between India and the EU
Trade relations between India and the EU date back to the 1960’s, when India was amongst the first countries to establish diplomatic relations with the, then so called, EEC (European Economic Community). Since then, the India-EU relation has
“The corner stone of the EU-India relationship lies in trade and
investment. The EU is India's largest trading and investment partner. Our bilateral
trade constitutes a quarter of India's total trade. The EU is also India's biggest
partner in development cooperation and the second largest source of foreign direct
investment.” (Pascal Lamy at Luncheon meeting at CII on March 14, 2003)
grown tremendously from a purely trade and economic driven relation to a relationship that covers more areas of interaction.
As the two largest democracies in the world, India and the EU share common values and believes which make them interesting partners. In addition to the social, political, cultural, legal, and economic impacts of the relation between India and the EU, this relation is mostly a determinant of international relations, such as international trade and investments (EIAS, 2007).
The in 1993 signed Joint Political Statement together with the 1994 Cooperation Agreement, accounted for an extended bilateral relation, beyond trade and economics. The India-EU relation has evolved further during the first EU-India summit in 2000. In 2004 India became one of the EU's "strategic partners", and in September 2005, the EU and India both adopted the India-EU Strategic Partnership Joint Action Plan (Ministry of External Affairs, 2005).
In 2006 India and the EU negotiated a bilateral deal on trade and investment.
With this agreement 90% of tariffs covering goods, services investment, trade facilitation, commerce and industry should be eliminated within the following 7 years.
Furthermore, since 2007 India and the EU are negotiating a Free Trade Agreement (FTA). With this FTA with India, the EU is, amongst other aspects, seeking greater market access and export gains for its large banks (Singh, 2009). These improved relationships with India are an important element of the EU’s Global Europe Strategy which is based on several long-term economic and strategic goals in order to improve the global competitiveness of EU companies (EIAS, 2007).
The EU, as a whole, is India’s largest trading partner and main source of inward FDI. India’s top 5 trading partners in the EU are the UK, Germany, Belgium, Italy, and France. EU-India trade has seen a striking growth over the last 30 years, from €4.4 billion in 1980 to over €55 billion in 2007 (European Commission, 2007;
EU Business, 2007), which currently represents for over 20% of India’s exports and imports (Indian Ministry of Commerce & Industry, 2008). On the other hand, India accounts for just 1.8% of total EU trade (this ranks as the EU’s 9
thtrading partner).
These numbers have the potential to grow even more. One of the reasons that is
hampering Indian exports to the EU are the many non-tariff barriers that restrict their
entry into the EU market (EIAS, 2007).
The main exports from India to the EU consist of textiles and clothing, agricultural products and chemicals. India is importing mainly machinery, chemical products, and gems and jewellery from the EU. Trade in services between India and the EU has increased extensively, in both directions.
Besides the largest trading partner, the EU is also India’s largest source of FDI, especially in services. The EU investment towards India is limited to a few large EU members such as UK, Germany, Netherlands, France, Italy, and Sweden.
EU investment to India has more than tripled in the recent years. Nevertheless, India attracts only 1.3% of the EU's world-wide investments (EU Business, 2007). EU investment in India is mainly directed towards the power/energy, telecommunications, and transport sectors. However, there is significant growth potential in the other sectors, such as financial services- especially banking and insurance, mechanical engineering, and biotechnology (European Commission, 2007).
II.3 Trade patterns and investment relations between India and Africa
India has had trade relations with Africa for centuries, and trade increased significantly since the 1990’s (Jenkins & Edwards, 2006). Moreover, as was pointed out by former President of South Africa, Thabo Mbeki, “Our enemy is common, we both have poverty and underdevelopment” (BBC News, April 2008).
Most activity of India is concentrated in a few African countries and in the industries such as oil and mining, lately also imports (from Africa) such as processed commodities, manufactured goods, foods, and even tourism are increasing (Broadman 2007 & 2008). India’s minister of Indian Commerce and Industry pointed out during the UNCTAD XII conference that India is working hard to further promote the South- South trade, as an important part of their international relations.
“India’s trade with Africa’s eastern and southern regions dates back to at least the days of the Silk Road […] but today […] the scale and pace of trade and investment flows between Africa and India [and China] are exceptional.”
(Broadman, 2008, pg.1)
Even though India’s growth may have negative effects on Africa, such as the displacement of local producers, and competition from Indian exports in third markets (Jenkins & Edwards, 2006), the basic differences in the resources, labour, and capital endowments of Africa and India make the two continents complementary partners, which means that this trade relation will likely be continued in the future (Geda &
Meskel, 2008).
Nowadays, Asia receives about 27% of Africa’s exports (which was 17% in 2000). This is almost at the same level of Africa’s trade with the EU and the US (Broadman, 2007). To be more specific, exports from India to Africa have increased from US$ 327.6 million in 1990 to US$ 10763.8 million in 2008. Imports have increased from US$ 671.1 million in 1990 to US$ 4663.2 million in 2008 (IMF Direction of Trade Statistics).
The trade pattern of India with Africa is geographically concentrated. South Africa accounted in 2008 for 49.2% of Africa’s exports to India (IMF Direction of Trade Statistics), which consists mainly of minerals, precious stones, metals and alloys, and chemicals. However, as was said before, nowadays India is importing more than only Africa’s fuels, minerals, and metal products. These imports consist of commodities that have undergone some labour intensive processing, and will be further processed in India (Broadman, 2008).
In 2002 the “Focus Africa” programme was launched by the Indian Ministry for Commerce and Industry, in order to further develop the bilateral trade between India and Africa (The National Portal of India). To boost bilateral trade, investment and general economic cooperation, India and Mauritius accepted in 2005 a Comprehensive Cooperation and Partnership Agreement (CECPA) (The National Portal of India).
Besides the longstanding trade relation of India and Africa, there is also a history of Indian investment in Africa. This was predominantly in the East African region where Indian expatriate communities were located (Edwards & Jenkins, 2005).
Until 1970, Indian companies entering into Africa was limited to Nigeria, Kenya and Uganda, nowadays over 28 countries in Africa receive Indian FDI (Pradhan, 2008).
Indian outward FDI flows have been small compared to total inward FDI in
India, and few of this outward FDI was direct towards sub-Saharan Africa (SSA).
However, Sudan account for 9% of the outward FDI of India between 1996 and 2003
(Jenkins & Edwards, 2005). The Reserve Bank of India states Mauritius as the top 1
destination of inward FDI into India, however this can be attributed to the preferred
tax climate in this country, and is therefore marked by UNCTAD as largely ‘round
tripping’ investment.
III. METHODOLOGY
III.1 Line of reasoning
This thesis focuses on the trade patterns and investment relations of India with the EU and Africa. Or more specifically:
In what way have the trade patterns and investment relations of India with the EU and Africa changed over time, and how do these relations influence these regions separately?
Most of the recent literature regarding the India-Africa relation has been focussing on the ‘Asian Drivers’ i.e. China and India combined. However this may give a some what distorted view, because overall trade and investment of China is multiple times larger than the amounts of India. For example in terms of production and consumption of energy and metals, China’s growth rates are 2.5 times higher than those of India. Moreover, net oil imports were significantly higher than in India, despite the fact that China’s oil production was 5 times more than India’s, and the same patterns accounts for ore, copper, and cotton (Goldstein et al., 2006).
Also the commodities of trade are different. Africa’s main exports to China are petroleum and raw materials (62% of total African exports to China); to India the main exports are non-oil minerals, such as ore and metals (61% of total African exports to India). For India the major import from Africa is gold, which accounts for 52% of total Indian imports from Africa. Moreover, India’s merchandise exports to Africa have been more diversified compared to China (Broadman, 2007). Therefore it is chosen not to combine India and China in this research, but focus on the trade patterns and investment relations of India alone.
First, the trade patterns of India with the EU and Africa will be analyzed over the timeframe of 1990-2008. The trade patterns can be defined by imports and exports of services and goods. The data will be linked to existing literature and incidents which will explain a certain course of events. Furthermore, an analysis will be given regarding the influence of the trade relations for both partners within this timeframe and beyond.
Secondly, the FDI flows between India and the EU and Africa will be
analyzed. This data is available from 1990 until 2007.
UNCTAD defines FDI as “an investment involving a long-term relationship and reflecting a lasting interest in and control by a resident entity in one economy (foreign direct investor or parent enterprise) of an enterprise resident in a different economy (FDI enterprise or affiliate enterprise or foreign affiliate). Such investment involves both the initial transaction between the two entities and all subsequent transactions between them and among foreign affiliates”.
A distinction will be made between net inward FDI, which represents the FDI flows that come from other countries in the world, i.e. the EU and Africa, towards India, and net outward FDI, which represents the FDI flows which come from India towards the rest of the world. After analyzing the FDI flows between India and the EU and Africa, the influence of these FDI flows for each data group will be considered.
The data on net inward as well as the net outward FDI flows for the India-EU relation was available over the time period of 1990-2007. However this data was not as such available for the India-Africa relation. There are articles that do mention parts of this data, but never the whole time period of this research. In order to still give an overview of the investment relation between India and Africa, the data from these articles will be used.
The data group ‘India’ consists of data which represents the country as a whole, however because the EU and Africa consist of separate countries, which have different trade patterns and investment relations with India, a selection is made for both continents. In the DATA section, the method for choosing this selection is explained.
III.2 Conceptual Model
The figure below gives a representation of the different dimensions of this research. The dark grey squares represent the relations which will be taken into account in this thesis. It is assumed that the trade patterns and investment relations of India with the EU and Africa will have an influence on India as well as on the EU and Africa. This thesis places a focus on the trade patterns and investment relations of India with 5 countries within the EU and 5 countries within Africa, represented by
‘EU’ dataset and ‘Africa’ dataset respectively. This will give answer to the first part
of the research question.
Furthermore, it is assumed that the trade patterns and investment relations will have a certain influence on the countries as a whole, i.e. country characteristics. This is represented in the figure below in the light grey area, and will answer the second part of the research question.
Fig 1. Conceptual Model
IV. DATA
IV.1 Data Set
This research is based on a country level analysis, concerning India, the EU, and Africa. The data regarding India is data which represents the country as a whole, however it has to be mentioned here that business in India is mainly located in the 4 metropoles; Delhi, Mumbai, Bangaluru, and Kolkata (fig I.1). The EU consists of 27 member states
ii(fig I.2) and Africa even consists of 48 countries
iii(fig I.3). Therefore, in order to make this research more comprehensive, a set of countries is chosen from both areas.
Within the timeframe of this research, 1990-2008, 15 countries accessed the EU. In 1995 Finland, Austria, and Sweden joined the EU. In 2004 Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia, and the Czech Republic. Most recently, Bulgaria and Romania joined the EU in 2007. The data of the specific countries was added to the EU database from the year they joined the EU, before that the country data was set to 0.
The top 5 trading partners in the EU with India are the UK, Germany, Belgium
iv, Italy, and France (see tables 1 & 2 and graphs II.3 & II.4). This top 5 remained the same over the timeframe of the research and also for both import (Indian import from the EU) as well as export (Indian export towards the EU). Moreover, this top 5 represents in all years more than 78% of total imports from the EU [by India]
and more than 68% of all exports (see tables 1 & 2).
ii Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom.
iii Angola, Benin, Botswana, Burkina Faso, Burundi, Cameroon, Cape Verde, Central African Republic, Chad, Comoros, Democratic Republic of Congo, Republic of Congo, Côte d’Ivoire, Djibouti, Equatorial Guinea, Eritrea (not included due to lack of data), Ethiopia, Gabon, The Gambia, Ghana, Guinea, Guinea-Bissau, Kenya, Lesotho, Liberia, Madagascar, Malawi, Mali, Mauritania, Mauritius, Mozambique, Namibia, Niger, Nigeria, Rwanda, Säo Tomé and Principe, Senegal, Seychelles, Sierra Leone, Somalia, South Africa, Sudan, Swaziland, Tanzania, Togo, Uganda, Zambia, Zimbabwe
iv Since 1999 European Community rules required split information of Belgium and Luxembourg, before international trade statics were combined.
Table 1. Top five countries of Indian imports from the EU (1990-2000-2008)
1990 2000 2008
% of imports from EU to India
% of imports from EU to India
% of imports from EU to India 1. Belgium-
Luxembourg 26.25 Belgium 28.92 Germany 25.67
2. Germany 24.99 UK 28.73 UK 16.06
3. UK 22.66 Germany 16.75 Belgium 15.97
4. France 9.77 Italy 6.84 France 10.50
5. Italy 7.74 France 6.22 Italy 9.81
Total 91.41 87.46 78.01
Source: own calculations based on graph II.5
Table 2. Top five countries of Indian exports to the EU (1990-2000-2008)
1990 2000 2008
% of exports from India to EU
% of exports from India to EU
% of exports from India to EU
1. Germany 28.75 UK 21.96 UK 17.80
2. UK 23.58 Germany 18.34 Germany 16.33
3. Belgium-
Luxembourg 14.87 Belgium 14.21 Belgium 12.76
4. Italy 10.62 Italy 12.41 Italy 11.69
5. France 8.97 France 9.82 France 9.89
Total 86.79 76.74 68.47
Source: own calculations based on graph II.6
The EU investment towards India is also limited to a few large EU members namely the UK, Germany, Netherlands, France, and in a lesser extent Sweden, Finland and Denmark (see table 3). Even though it is still a small amount, Indian outward investment to the EU is rising, though very much fluctuating between countries (see table 4, III.5 and graph III.3). The net inward FDI flows in the table below are displayed for different years as was done for the import and export tables.
This is done, because in 1990 the amount of inward FDI from the EU to India was extremely small, and a part of this data was lacking. The data is available until 2007.
Table 3. Top five countries of net inward FDI flows from the EU to India (1998-2002-2007)
1998v 2002 2007
% of total net inward FDI
% of total net inward FDI
% of total net inward FDI
1. Germany 21.55 UK 8.13 Germany 11.08
2. UK 12.79 Germany 3.87 UK 6.28
3. Netherlands 4.40 Netherlands 2.70 Netherlands 3.19
4. France 0.92 France 2.35 France 2.36
5. Denmark 0.55 Finland 0.33 Sweden 1.24
Total 40.21 17.38 24.13
Source: own calculations based on graph III.2
v The EuroStat database used up until 31 December 1998 the currency ECU (European Currency Unit).
This was a basket of the currencies of the European community. From January 1st 1999 the ECU was replaced by the Euro, at parity (1 ECU = 1€).
The net outward FDI flows from India to the EU are quite small, and vary greatly per year, for each country. Therefore it has to be mentioned that the below presented table is somewhat ambiguous. Portugal for example, has small inflows of Indian FDI over the years; however in the year 2007 it jumped to €231 million, from only €6 million in the preceding year. Moreover, in 2005 and 2006 the FDI flow from India to the UK was €202 and €389 million respectively, but this amount fell in 2007 to €96 million. Therefore, the major destinations of net outward FDI from India are not taken into account for constructing the European dataset.
Table 4. Top five countries of Net Outward FDI flows from India to the EU (1998-2002-2007)
1998 2002 2007
1. Germany Germany Portugal
2. UK Netherlands UK
3. - Portugal Austria
4. - Ireland Ireland
5. - Belgium France
Source: based on graph III.3
From these lists of major trading and investment partners from the EU a selection of 5 countries is made for further analysis. First of al the UK is chosen. India has had a long (trade) history with the UK. The British East India Company established in India in 1612, primarily to enhance trade relations between India and other European trading companies. From 1858 until 1947, India fell under the British colonial rule. Therefore the UK would be a fascinating country to further analyze the trade patterns and investment relations with India. Moreover, over the last years the UK has been one of the 3 largest trading partners of India and also one of the two largest sources of net inward FDI.
Secondly, Germany is added to the data set. Germany accounts for the largest economy in Europe, and is heavily export oriented. Furthermore, over the last 20 years Germany was the largest or second largest trading partner of India. In Addition, Germany was for this time period also among the two largest sources of net inward FDI.
Third, France is included in the dataset. France is among the largest trading and investment partners within the timeframe of this research. Also France was besides the UK, the second largest power in India during colonial rule.
According to the United Nations Statistics Division, Germany and France both
are part of ‘western Europe’. The UK is defined as ‘northern Europe’, but most of the
time grouped together with the western European countries. Thus, to give more
variety in the European data set, another northern and a southern European country is added.
Although not a large trading or investment partner, Sweden is chosen for the European dataset. Sweden, as part of the Scandinavian countries, is growing faster compared to the western European economies, moreover they tend to encourage investments abroad. The Swedish economy is heavily oriented towards foreign trade, and has a large export market which stimulates their economic growth. Main industries for exports are services, IT, and telecommunication, which are also among the highest FDI receiving industries of India.
Last, Italy is added to the data set. Italy is part of the ‘southern European’
countries and the fourth largest country in the EU when looking at population and GDP. Furthermore Italy has been amongst the top five in trading partners with India for the timeframe of this research.
Hence the European data set will consist of UK, Germany, France, Sweden, and Italy.
In this research ‘Africa’ refers to the countries of sub-Saharan Africa. The sub-
Saharan Africa consists of 48 countries. However the majority of trade comes from
only a part of these countries. The top 10 countries of Indian imports from SSA are far
more diverse compared to the countries of Indian imports from the EU. Within the
time frame of this research 14 countries have been in the top 10 import partners of
India (see table 5). The top ten of Indian exports to SSA is even more diverse, with 16
different countries between 1990-2008 (see table 6). However, these tables also show
that the top 5 countries account for the majority of trade. For imports the major
partners changed notably over time, especially between 1990 and 2000 when the
whole top 5 changed. However, between 2000 and 2008 the top 5 remained almost the
same with the following countries; South Africa, United Republic of Tanzania (from
hereon Tanzania), Côte d’Ivoire, Guinea-Bissau, Nigeria, and Benin. Regarding
exports, the major trading partners between 1990-2008 were Nigeria, South Africa,
Mauritius, Kenya, and in a lesser extent Sudan, Tanzania, Zambia.
Table 5. Top ten countries of Indian imports from SSA (1990-2000-2008)
1990 2000 2008
% of imports from SSA to India
% of imports from SSA to India
% of imports from SSA to India
1. Zambia 24.36 South Africa 48.92 South Africa 49.18
2. Senegal 21.03 Nigeria 30.04 Tanzania 5.78
3. Dem. Rep. of
Congo 15.40 Côte d’Ivoire 4.49 Côte d’Ivoire 4.64
4. Tanzania 7.26 Tanzania 2.92 Guinea-
Bissau 4.24
5. Kenya 5.38 Guinea-
Bissau 2.13 Benin 3.67
6. Nigeria 4.96 Senegal 2.12 Nigeria 3.56
7. Togo 4.18 Benin 1.92 Ghana 3.39
8. Guinea-
Bissau 3.41 Ghana 0.89 Senegal 3.32
9. Zimbabwe 2.79 Kenya 0.75 Togo 3.25
10. São Tomé &
Príncipe 2.00 Zambia 0.59 Kenya 2.26
Total 90.77 94.77 83.29
Source: own calculations based on Graph II.7
Table 6. Top ten countries of Indian exports to SSA (1990-2000-2008)
1990 2000 2008
% of exports from India to SSA
% of exports from India to SSA
% of exports from India to SSA
1. Nigeria 20.35 Nigeria 19.84 South Africa 22.00
2. Mauritius 14.30 South Africa 16.69 Nigeria 17.21
3. Kenya 12.21 Mauritius 10.55 Kenya 9.46
4. Tanzania 8.80 Kenya 7.39 Mauritius 8.60
5. Zambia 6.82 Tanzania 5.32 Sudan 5.74
6. Sudan 5.34 Sudan 5.00 Tanzania 3.96
7. Ethiopia 4.52 Ethiopia 3.52 Djibouti 3.63
8. Uganda 3.86 Ghana 3.27 Ghana 3.47
9. Benin 3.33 Uganda 2.39 Togo 2.50
10. Zimbabwe 2.93 Côte d’Ivoire 2.36 Angola 2.32
Total 82.46 76.33 78.89
Source: own calculations based on Graphs II.8
With respect to the investment relations of India with the separate countries from SSA, the separate country data regarding the net inflows and net outflows of FDI is unavailable for the whole time period. A part of the data is available through other articles, which will be used in the results analysis part.
Previous research points out that because of the increased demand for
resources, especially oil, India has gone to Africa. However when looking at Indian
imports from SSA over time, comparing them to the net oil exporters
videfined by the IMF (IMF, 2007), and the largest oil producers defined by the US Energy Agency
vii, it shows that only two of these countries are in the top 10 of India’s import countries in SSA, namely Nigeria and Côte d’Ivoire, which only represent for small percentages of total imports. Therefore, in this research it is not chosen to make a selection only based on oil and non-oil exporters, which has been done in previous research.
First of all South Africa is chosen for the ‘Africa’ dataset. South Africa is referred to as one of Africa’s superpowers, and is internationally recognized as one of Africa’s emerging markets (Kehl, 2007). South Africa and Nigeria currently are the two dominant economies in SSA (Broadman, 2007), as are Germany and the UK for the EU (which are part of the ‘EU’ dataset), and are therefore both interesting to comprise in the ‘Africa’ dataset. Since 2000, South Africa accounts for almost 50% of Indian imports from SSA. Also since 2000 South Africa receives a large part of Indian exports.
As was mentioned before, Nigeria is one of the dominant economies in Africa.
Furthermore over the years Nigeria was a major export destination of India, receiving 17.21% of Indian exports to SSA in 2008, which makes it the second largest export destination in SSA. On the contrary, between 1990 and 2000 there was a sharp increase in imports from Nigeria, however by 2008 this diminished to almost the same level of 1990.
Thirdly Tanzania is added to the ‘Africa’ dataset. Tanzania is amongst the African countries with the highest GDP growth, which was around or higher than 7%
since 2002 (IMF World Economic Outlook Database, 2009). Moreover it was amongst the top 4 SSA countries of Indian imports between 1990 and 2008. Also Tanzania was one of the major exporters to India in this time period, and about 10%
of Tanzania’s total exports is directed towards India (see table II.9).
As the fourth country, Mauritius is added to the ‘Africa’ dataset. Mauritius has been one of top 5 destinations of Indian exports in SSA. India is one of the major economic and commercial partners of Mauritius. Furthermore Mauritius is the number
vi Net oil exporters are defined by the IMF based on net oil exports, these include Angola, Cameroon, Chad, Republic of Congo, Côte d’Ivoire, Equatorial Guinea, Gabon, and Nigeria.
vii Largest oil producers from SSA defined by the US Energy Agency include Nigeria, Angola, Sudan, Equatorial Guinea, Chad
one source of inward FDI and the third largest destination of outward FDI. In addition, India is an important development partner of Mauritius.
Lastly, Sudan is added to the dataset. India shares a connection of common heritage and culture with Sudan (Pradhan, 2008). Even though Sudan is not in the top 10 of Indian imports from SSA, they do receive the largest amount of outward FDI from India. This FDI is towards an investment in one of Sudan’s oil fields. Moreover, Sudan has been in the top 10 of export partners for the whole period of this research.
Therefore the ‘Africa’ dataset will consist of South Africa, Nigeria, Tanzania, Mauritius, and Sudan.
IV.2 Variables
The scope of the research entails the trade patterns and investment relations of India with the EU & Africa.
Data will be gathered, as far as available, from FY1990-1991 until FY2007-2008 (the Indian financial year runs from the 1
stof April until the 31
stof March). The year 1990 has been chosen as a starting point for this research because that was the year of the new reforms in India and in consequence the start of India’s economic liberalization, which in turn lead to the spectacular growth rates of the country.
Moreover, as was mentioned in the background, Indian-African trade has increased significantly since the 1990’s.
Below an operationalization of the variables ‘trade patterns’ and ‘investment relations’ is given, subjected to the dataset that was mentioned in the prior section.
The data regarding the trade patterns will entail:
•
Indian imports from the UK, Germany, France, Sweden, and Italy
•
Indian exports to the UK, Germany, France, Sweden, and Italy
•
Indian imports from South Africa, Nigeria, Tanzania, Mauritius, and Sudan
•
Indian exports to South Africa, Nigeria, Tanzania, Mauritius, and Sudan
This data will be obtained from the Direction of Trade Statistics of the IMF, this
database was latest updated May 27, 2009, which provides annual import and export
data.
The investment relations will be explained by the following variables:
•
Indian inward FDI from the UK, Germany, France, Sweden, and Italy
•
Indian Outward FDI to the UK, Germany, France, Sweden, and Italy
viii•
Indian Inward FDI from South Africa, Nigeria, Tanzania, Mauritius, and Sudan
ix•
Indian Outward FDI from South Africa, Nigeria, Tanzania, Mauritius, and Sudan
xData regarding the India-EU investment relations will be gathered from various databases. The inward and outward FDI data of India with the UK, Germany, France, Sweden, and Italy will be obtained from Eurostat Database
xiand the OECDStatExtracts
xii. These databases are both available for the time period 1990- 2007.
Data of the India-Africa investment relations is not available broken down per African country or for the whole time period. However, some articles do refer to inward and outward FDI data, which will be used in the analysis of the investment relation between India and Africa. Because not all data for the ‘Africa’ dataset is available, the investment relation cannot be specified for the separate countries in the dataset, however when data is available this will be used in the country specific analysis. The articles which will be used regarding their specific FDI data are:
Broadman (2007), Goldstein et al. (2006), Jenkins and Edwards (2005 & 2006), Nunnenkamp & Stracke (2007), and Pradhan (2008).
viii This variable was omitted when combining the dataset, however when analyzing this investment relation it is relevant to include the data that is available.
ix Due to data unavailability there is not a clear representation of this variable, however it is included in the results part of the research where possible
x See ix
xi http://epp.eurostat.ec.europa.eu/portal/page/portal/balance_of_payments/data/database (EU direct investment)
xii http://stats.oecd.org/index.aspx?r=654926
