India in the International Production Network: The Role of Outward FDI

Abstract

Outward FDI from India has expanded manifold since the liberalization of policy regime. The phenomenon is expected to improve India’s involvement in international production network. The paper examines the role of outward FDI in the manufacturing sector on production-network-related trade over the period 2008–2014. The impact of bilateral outward FDI on exports of parts and components to FDI-host countries is investigated using within-transformed fixed effects, and fixed-effects Poisson quasi-maximum likelihood method. The results reveal a positive and significant impact of outward FDI on production-network-related trade, suggesting to the crucial role that manufacturing outward FDI can play in expanding the outreach of Indian manufacturing in the global economy. Towards this end, promotion of outward FDI in the manufacturing sector needs to be accompanied by policy coordination with respect to inward FDI and trade facilitation in order to integrate manufacturing facilities in India with production hubs in the international production network for deriving benefits of global value chains.