Graduating to globalisation: a study of Southern multinationals
Abstract
Purpose
Recent developments in the literature on international trade and foreign direct investment (FDI) emphasise the role of firm characteristics in shaping firm participation in exports and FDI. The seminal work of Melitz and Helpman-Melitz-Yeaple (HMY) places heterogeneity in firm productivity at the heart of exporting and FDI. While the HMY hypothesis finds support for firms in the industrialised economies, the evidence from developing economies is limited. This paper attempts to contribute empirical insights into the theoretical framework laid out by Melitz, Helpman et al., Head and Ries with evidence from India.
Design/methodology/approach
While related literature takes into account several firm-specific and country-specific characteristics to explain outward FDI, the paper unifies the firms ' choice of markets (domestic versus foreign) and mode of serving foreign markets (export versus FDI) in a single framework in the line of the HMY model. The paper uses an ordered probit model that combines domestic market-oriented, exporting and outward FDI-oriented firms in a quality ladder.
Findings
The findings are that there are strong differences between the characteristics of domestic firms, exporting firms, and firms that invest abroad. The differences between these firms are consistent with the HMY model. The most productive firms appear to walk up this ladder of quality and graduate to globalisation through exporting and then through FDI.
Originality/value
A key innovation of this paper is an ordered probit model that combines domestic market-oriented, exporting and outward FDI-oriented firms in a quality ladder. The paper also brings empirical insights into the theoretical framework laid out by Melitz, Helpman et al., Head and Ries with evidence from India.
Keywords
Acknowledgements
JEL classification – F12, F14, F23, L1, D20. This paper was written under the aegis of the NIPFP-DEA Research Programme. The authors are grateful to Rudrani Bhattacharya, Radhika Pandey, Sourafel Girma, T.N. Srinivasan and Shubhashis Gangopadhyay for comments, to Apoorva Gupta and Vimal Balasubramaniam for research assistance and to CMIE for access to the data.
Citation
Demirbas, D., Patnaik, I. and Shah, A. (2013), "Graduating to globalisation: a study of Southern multinationals", Indian Growth and Development Review, Vol. 6 No. 2, pp. 242-259. https://doi.org/10.1108/IGDR-12-2012-0050
Publisher
:Emerald Group Publishing Limited
Copyright © 2013, Emerald Group Publishing Limited