Relationship Between FDI and Exports in the Indian Food and Beverage Sector : An Empirical Study
DOI:
https://doi.org/10.17010/aijer/2023/v12i2/173178Keywords:
export intensity
, FDI, heterogeneity, panel dataJEL Classification Codes
, C23, F14, F23Paper Submission Date
, January 17, 2023, Paper sent back for Revision, April 10, Paper Acceptance Date, April 25, 2023Abstract
Purpose : The current study focused on analyzing the effect of foreign direct investment (FDI) on export performance and identifying the factors responsible for the diverse export performance of the food and beverage sector of the Indian economy. The fundamental incentive for conducting such a study is the growing relevance of exports and FDI in the internationalization process as well as their role in corporate efficacy.
Methodology : Besides FDI being the central variable, certain firm-level variables, namely capital intensity, debt-to-equity ratio, in-house R&D expenditure, embodied technology, disembodied technology, labor productivity, marketing costs, size, and age, were introduced as control variables. The Heckman and Tobit regression approaches were two-panel data techniques used to analyzed and compare the results. Furthermore, the results were computed and analyzed separately for the food, beverage, and manufacturing sectors (comprising the food and beverage sectors taken together).
Findings : The findings revealed that regarding the variable FDI, the results were significantly negative, connoting that the nature of FDI is market-seeking intended to capture a more significant share of the domestic market without a subsequent increase in exports. FDI and exports were, hence, substitutes. In-house research and development and disembodied technology have an insignificant impact on export intensity. Capital intensity, debt-to-equity ratio, and embodied technology were significant variables and gave the same results across the methodologies used for the analysis. The results were different across the methods for labor productivity, marketing costs, size, size square, age, and age square.
Practical Implications : From the point of view of policymakers, there was no increase in exports as FDI was market-seeking. The Government should formulate policies appropriately to draw in additional FDI that seeks efficiency. Additionally, while capital intensity and debt-to-equity ratios were highly detrimental, exports could be increased in India through labor-intensive technology and better financial conditions. Furthermore, importing raw materials and capital goods should be eased as this improves the quality of products produced for exports.
Originality : To the best of our knowledge, this study is the first attempt to investigate the relationship between FDI and exports in the Indian economy’s food and beverage industry in the presence of heterogeneous firm-related characteristics. Understanding this link could help uncover the variables other than FDI that are responsible for varied export performance.
Downloads
Downloads
Published
How to Cite
Issue
Section
References
Ahmad, F., Draz, M. U., & Yang, S.-C. (2018). Causality nexus of exports, FDI and economic growth of the ASEAN5 economies: Evidence from panel data analysis. The Journal of International Trade & Economic Development, 27(6), 685–700. https://doi.org/10.1080/09638199.2018.1426035
Allen, F., Chakrabarti, R., De, S., Qian, J., Qian, J. O., & Qian, M. (2012). Financing firms in India. Journal of Financial Intermediation, 21(3), 409–445. https://doi.org/10.1016/j.jfi.2012.01.003
Amornkitvikai, Y., Harvie, C., & Charoenrat, T. (2012). Factors affecting the export participation and performance of Thai manufacturing small and medium sized Enterprises (SMEs). In, 57th International Council for Small Business World Conference (pp. 1–35). International Council for Small Business. https://ro.uow.edu.au/commpapers/1041
Anwar, S., & Sun, S. (2016). Foreign direct investment, domestic sales and exports of local firms: A regional perspective from China. Journal of the Asia Pacific Economy, 21(3), 325–338. http://doi.org/10.1080/13547860.2016.1176640
Bernard, A. B., & Jensen, J. B. (2004). Why do some firms export? The Review of Economics and Statistics, 86(2), 561-569. https://doi.org/10.1162/003465304323031111
Bhat, S., & Narayanan, K. (2009). Technological efforts, firm size and exports in the basic chemical industry in India. Oxford Development Studies, 37(2), 145–169. http://doi.org/10.1080/13600810902859528
Centre for Monitoring Indian Economy. (n.d.). Prowess database. https://prowess.cmie.com/
Charoenrat, T., & Amornkitvikai, Y. (2021). Factors affecting the export intensity of Chinese manufacturing firms. Global Business Review. https://doi.org/10.1177/09721509211000207
Charoenrat, T., & Harvie, C. (2017). Thailand's SME participation in ASEAN and East Asian regional economic integration. Journal of Southeast Asian Economies, 34(1), 148–174. https://doi.org/10.1355/ae34-1f
Charoenrat, T., & Pholphirul, P. (2022). The industrial sector participation in global value chains for sustainable development of the Greater Mekong Subregion (GMS). Global Business Review, 23(3), 608–640. https://doi.org/10.1177/0972150919877097
Chen, C., Sheng, Y., & Findlay, C. (2013). Export spillovers of FDI on China's domestic firms. Review of International Economics, 21(5), 841–856. https://doi.org/10.1111/roie.12074
Das, S., Roberts, M. J., & Tybout, J. R. (2007). Market entry costs, producer heterogeneity, and export dynamics. Econometrica, 75(3), 837–873. https://doi.org/10.1111/j.1468-0262.2007.00769.x
De, P. K., & Nagaraj, P. (2017). Effects of foreign equity participation on recipient firm exports. Applied Economics, 49(31), 3100–3113. http://doi.org/10.1080/00036846.2016.1254340
Dunning, J. H. (1977). Trade, location of economic activity and the MNE: A search for an eclectic approach. In, B. Ohlin, P. O. Hesselborn, & P. M. Wijkman (eds.), The international allocation of economic activity (pp. 395–418). Palgrave Macmillan. https://doi.org/10.1007/978-1-349-03196-2_38
Duran, I. A., & Ryan, M. (2014). Spillover effects from inward FDI on the exporting decisions of Chilean manufacturing plants. Journal of Industry, Competition and Trade, 14(3), 393–414. https://doi.org/10.1007/s10842-013-0160-2
George, A. B. (2022, January 26). F & B exports: What is driving the resurgence? Trade Promotion Council of India. https://www.tpci.in/indiabusinesstrade/blogs/fb-exports-whatsdriving-the-resurgence/
Ghosh, M., & Roy, S. S. (2018). Foreign direct investment, firm heterogeneity, and exports: An analysis of Indian manufacturing. Asian Development Review, 35(1), 27–51. https://doi.org/10.1162/adev_a_00104
Goh, S. K., Sam, C. Y., & McNown, R. (2017). Re-examining foreign direct investment, exports, and economic growth in Asian economies using a bootstrap ARDL test for cointegration. Journal of Asian Economics, 51, 12–22. https://doi.org/10.1016/j.asieco.2017.06.001
Goldar, B. & Banga, K. (2020). Country origin of foreign direct investment in Indian manufacturing and its impact on productivity of domestic firms. In, N. Siddharthan, & K. Narayanan (eds.), FDI, technology and innovation (pp. 13–55). Springer. https://doi.org/10.1007/978-981-15-3611-3_2
Goldar, B. (2013). R&D intensity and exports: A study of Indian pharmaceutical firms. Innovation and Development, 3(2), 151–167. https://doi.org/10.1080/2157930X.2013.828878
Gupta, A., Patnaik, I., & Shah, A. (2019). Exporting and firm performance: Evidence from India. Indian Growth and Development Review, 12(1), 83–104. https://doi.org/10.1108/IGDR-04-2018-0036
Ha, V., Holmes, M. J., & Hassan, G. (2020). Does foreign investment benefit the exporting activities of Vietnamese firms? The World Economy, 43(6), 1619–1646. https://doi.org/10.1111/TWEC.12912
Heckman, J. J. (1979). Sample selection bias as a specification error. Econometrica, 47(1), 153–161. https://doi.org/10.2307/1912352
Hu, C., & Tan, Y. (2016). Export spillovers and export performance in China. China Economic Review, 41, 75–89. https://doi.org/10.1016/j.chieco.2016.08.008
Kapoor, A., & Sinha, N. (2021). India Innovation Index 2021. Niti Aayog. https://www.niti.gov.in/sites/default/files/2022-07/India-Innovation-Index-2021-Web-Version_21_7_22.pdf
Kaur, G., & Dhami, J. K. (2016). Empirical analysis between export and GDP : A case of BIMSTEC as a regional trading bloc. Arthshastra Indian Journal of Economics & Research, 5(6), 8–20. https://doi.org/10.17010/aijer/2016/v5i6/107518
Kumar, N., & Siddharthan, N. S. (1994). Technology, firm size and export behavior in developing countries: The case of Indian enterprises. The Journal of Development Studies, 31(2), 289–309. https://doi.org/10.1080/00220389408422362
Kumari, D., & Malhotra, N. (2015). Export and economic growth in select South Asian countries: Causality analysis based on Granger test & VECM. Arthshastra Indian Journal of Economics & Research, 4(4), 21–36. https://doi.org/10.17010/aijer/2015/v4i4/77668
Kuntluru, S., Muppani, V. R., & Khan, M. A. (2012). Foreign direct investment and export performance of pharmaceutical firms in India: An empirical approach. International Journal of Economics and Finance, 4(5), 216–226. https://doi.org/10.5539/ijef.v4n5p216
Ma, Y., & Rauf, A. (2020). Indigenous innovation, foreign technology transfer and the export performance of China's manufacturing industries. The Singapore Economic Review, 65(5), 1349–1366. https://doi.org/10.1142/S0217590819400034
Manova, K. (2013). Credit constraints, heterogeneous firms, and international trade. The Review of Economic Studies, 80(2), 711–744. https://doi.org/10.1093/restud/rds036
Melitz, M. J. (2003). The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica, 71(6), 1695–1725. https://doi.org/10.1111/1468-0262.00467
Ministry of Commerce and Industry, Department of Commerce, Government of India. (n.d.). India's merchandise trade: Preliminary data January 2022. https://commerce.gov.in/pressreleases/indias-merchandise-trade-preliminary-data-january-2022/
Mohapatra, S. M. (2022a). Export performance of micro, small, medium and large enterprises of the Indian manufacturing sector. Journal of Public Affairs, 22(2), e2480. https://doi.org/10.1002/pa.2480
Mohapatra, S. M. (2022b). Export performance: A study of labor- and capital-intensive manufacturing industries in India. Transnational Corporations Review, 1–11. https://doi.org/10.1080/19186444.2022.2116898
Mondal, S., & Pant, M. (2020). FDI and export spillovers: A case study of India. In S. Aggarwal, D. Das, & R. Banga (eds.), Accelerators of India's growth—Industry, trade and employment (pp. 177–208). India Studies in Business and Economics. Springer. https://doi.org/10.1007/978-981-32-9397-7_9
Nagaraj, P. (2014). Financial constraints and export participation in India. International Economics, 140, 19–35. http://doi.org/10.1016/j.inteco.2014.07.001
Nguyen, D. T., & Sun, S. (2012). FDI and domestic firms' export behavior: Evidence from Vietnam. Economic Papers: A Journal of Applied Economics and Policy, 31(3), 380–390. https://doi.org/10.1111/j.1759-3441.2012.00180.x
Padmaja, M., & Sasidharan, S. (2021). Financing constraints and exports: Evidence from India. Journal of Economics and Finance, 45(1), 118–145. https://doi.org/10.1007/s12197-020-09532-6
PLI for food processing sector to boost domestic manufacturing, exports: TPCI. (April 1, 2021). The Economic Times. https://economictimes.indiatimes.com/news/economy/agriculture/pli-for-food-processing-sector-to-boost-domestic-manufacturing-exportst-pci/articleshow/81841804.cms?from=mdr
Popovici, O. C. (2018). The impact of FDI on EU export performance in manufacturing and services. A dynamic panel data approach. Romanian Journal of Economic Forecasting, 21(1), 108–123. https://ipe.ro/rjef/rjef1_18/rjef1_2018p108-123.pdf
Press Information Bureau. (2022, May 20). India gets the highest annual FDI inflow of USD 83.57 billion in FY21-22. https://pib.gov.in/PressReleasePage.aspx?PRID=1826946
Rahmaddi, R., & Ichihashi, M. (2013). The role of foreign direct investment in Indonesia's manufacturing exports. Bulletin of Indonesian Economic Studies, 49(3), 329–354. http://doi.org/10.1080/00074918.2013.850632
Reserve Bank of India. (2020). RBI Bulletin : Food processing industry in India: Challenges and potential. https://rbi.org.in/scripts/BS_ViewBulletin.aspx?Id=18823
Rijesh, R. (2020). Trade liberalisation, technology import, and Indian manufacturing exports. Global Economic Review, 49(4), 369–395. https://doi.org/10.1080/1226508X.2020.1798267
Roy, P. K., & Das, P. S. (2018). Productivity growth decomposition in the manufacturing industries of food, beverages, and tobacco products in India : A stochastic frontier approach. Arthshastra Indian Journal of Economics & Research, 7(1), 37–57. https://doi.org/10.17010/aijer/2018/v7i1/122138
Sahoo, P. K., Rath, B. N., & Le, V. (2022). Nexus between export, productivity, and competitiveness in the Indian manufacturing sector. Journal of Asian Economics, 79, 101454. https://doi.org/10.1016/j.asieco.2022.101454
Sahu, P. K. (2015). Technical efficiency of domestic and foreign firms in Indian manufacturing: A firm level panel analysis. Arthshastra Indian Journal of Economics & Research, 4(2), 7–21. https://doi.org/10.17010/aijer/2015/v4i2/65534
Siba, E., & Gebreeyesus, M. (2016). Learning to export and learning from exporting: The case of Ethiopian manufacturing. Journal of African Economies, 26(1), 1–23. https://doi.org/10.1093/jae/ejw022
Sun, S. (2012). The role of FDI in domestic exporting: Evidence from China. Journal of Asian Economics, 23(4), 434-441. http://doi.org/10.1016/j.asieco.2012.03.004
Sun, S., & Anwar, S. (2017). Foreign direct investment and the performance of indigenous firms in China's textile industry. The Quarterly Review of Economics and Finance, 65, 107–113. http://doi.org/10.1016/j.qref.2017.03.005
Tobin, J. (1958). Estimation of relationships for limited dependent variables. Econometrica, 26(1), 24–36. http://doi.org/10.2307/1907382
