DO MOTIVES BEHIND FDI FLOWS HAVE ANY IMPLICATIONS FOR THEIR EFFECTS ON THE HOST COUNTRY?

Motives for FDI range from resource-seeking and market-seeking to efficiency-seeking. The authors believe that the benefits (in terms of cost efficiencies, productivity and profitability) that a developing country reaps from FDI flows depend on the motives behind the FDI flows. They hypothesize that a country is likely to gain more from efficiency-seeking FDI flows than from market-seeking or resource-seeking FDI flows. The authors test this hypothesis with respect to India, using annual data and a distributed lag model. Five sectors have been selected for the purpose of testing the hypothesis. Findings reveal that in India, FDI flows have not contributed significantly to the three parameters cost reduction, improvement in productivity and profitability in most of the sectors. It is a significant finding that the computer industry has gained from FDI flows in terms of cost reduction. The authors also further find that the motives behind FDI flows to this sector have been efficiency-seeking .