Determinants of the sources of FDI into India

Abstract

Inward FDI flows over 2000-01 from many source countries into India, one of the fastest growing large developing economies in the period, have been explained by an extended gravity model and the an extended allometric models by incorporating other variables such as common language, tax status, interest differential, and distance to arrive at the importance of these variables. Additionally, in representing the “size” in the both models by not GDP but as a constitution of per capita income and population, the difference between countries with the same GDP but at different levels of development are accounted for in the normalization itself so that the influence of the economic variables is more robustly estimated. The allometric model is found to be superior in explaining the overall variance in FDI inflows.