Attracting Foreign Direct Investment

Abstract

Foreign Direct Investment (FDI) inflows are industry-specific and, therefore, are regional-specific. Following this framework, the paper, first of all, notes that the regional FDI inflows relate positively to cross-regional differences in initial level of manufacturing output. This is especially when cross-regional differences in initial level of manufacturing output do not conform to a regional manufacturing convergence process and point to cross-regional differences in production structures. The paper also says that the regional FD! inflows are attracted less by regional incentive pattern (both provisions off inancial incentives and infrastructure facilities) which is independent of cross-regional differences in manufacturing levels. At the same time, though FDI inflows are attracted to regions with initial higher level of manufacturing output, they do not directly support a divergence process. This may be due to the fact that (1) FDI regional flows pertain mainly to the post-1991 phase. and (2) the FDI and total private investment in India have different regional biases.