RIEB Discussion Paper Series No.2019-06

Title

Firm Heterogeneity and the Activity of Japanese Manufacturing Multinationals in India

Abstract

This paper anatomizes the linkage between country/region characteristics and Japanese MNE activity in India from both theoretical and empirical sides. We construct a North-South firm-heterogeneity model with FDI and exchange rate. We use this model to make three contributions: First, we theoretically reveal how country characteristics affect the average sales of the firm in the host country. Secondly, we make clear the state-level characteristics on three main industrialized areas in India using the data from some valuable databases. Thirdly, we estimate determinant factors of average sales of each Japanese affiliate firms in India focusing on regional characteristics derived in the theoretical part using firm-level data. We also construct several proxy variables of determinant factors of average sales in state-level and put into estimated regression equation. This empirical analysis targets at the 1990s and 2000s. Over this period, India enjoyed steady economic growth and it can be linked with increase of FDI inflow and technological spillover from MNEs. We find out that some regional characteristics such as level of human-capital or transportation cost in each state and also exchange rate have a significant effect on average sales of each Japanese affiliate firms in India.

Keywords

Firm heterogeneity, foreign direct investment, India, Japanese multinational enterprises

JEL Classification

F10, F12, F23, L25, O53, R30

Inquiries

Hiroyuki NISHIYAMA
School of Economics, University of Hyogo

Azusa FUJIMORI
Faculty of Management, Osaka Seikei University

Takahiro SATO
Research Institute for Economics and Business Administration
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: +81-78-803-7036
FAX: +81-78-803-7059