FDI, Firm Heterogeneity and Exports: An Analysis of Indian Manufacturing

Using firm-level data, this paper investigates whether Foreign Direct Investment (FDI), and hence Multinational Enterprise (MNE) presence, explains India’s improved export performance during post-reforms. The recent literature stresses that firm heterogeneity gives some firms an edge over others to self select into export market. Apart from ownership, this paper takes into account firm heterogeneity and various other firm-specific factors while understanding firm-level export performance. Hausman-Taylor estimation results show that foreign ownership does not have significantly different impact on export performance over domestic firms across sectors in Indian manufacturing. Rather firms acquire internationally competitiveness from imported raw materials, foreign technical know-how and local R&D. Further, firm heterogeneity measured in terms of sunk costs significantly impacts on firm-level export intensity. The study further reveals that there are ownership specific factors that determine firm-level exports. The results have significant implications for policy in order to attain international competitiveness of firms in India