Monday, February 8, 2010

Graduating to Globalisation: A Study of Southern Multinationals

NIPFP Working Paper 65

Dilek Demirbas, Ila Patnaik and Ajay Shah
February 2010


FDI by firms in developing countries is a recent phenomenon and demands a study of relationship between firm productivity and different modes of globalization activities. This paper attempts to understand this relationship through ordered probit models, examining two key hypotheses using firm level panel data from India. First, we test whether there are characteristic differences between domestic firms, exporting firms and firms engaging with FDI. Second, we test if FDI is an integral part of the evolution of firms in developing countries. Our results suggest that there are strong differences between domestic firms, exporting firms, and firms that invest abroad, especially in their knowledge investment, indicating the presence of a ladder of quality in graduating to globalisation.