Benefitting from Investment Abroad? Evidence from Indian Manufacturing

This paper studies the relationship between outward foreign direct investment (OFDI) and domestic performance for Indian firms utilizing propensity score matching combined with a difference-in-differences specification. We find modest effects on total factor productivity (TFP), but complementary effects on exporting and sales. Multiple sources of heterogeneity in treatment effects are considered. Taking the foreign investment decision as one that may differ in intensity, continuous treatment based on dose (OFDI intensity)-response (TFP growth, sales growth, export intensity) functions shows an inverted U-shaped relationship complementing previous exports-performance literature. Export intensity shows a robust relationship in which performance rises relative to a dose of zero, within a range of OFDI intensity. As the foreign involvement of Indian firms is still very low, there appears to be a considerable interval over which OFDI can favorably impact home effects. OFDI policy should support the benefits of outward investment, focusing on firms with small OFDI positions