Does Inward Foreign Direct Investments Affect Export Performance of Micro Small and Medium Enterprises in India? An Empirical Analysis

Does Inward Foreign Direct Investments Affect Export Performance of Micro Small and Medium Enterprises in India? An Empirical Analysis

This article examines the effect of inward foreign direct investments (FDI) on the export performance of micro, small & medium enterprises (MSMEs) in India, and investigates the spillover impact and absorption capacity of the MSMEs sector. For the first time, the researchers applied the intersectoral linkage approach to investigate the matter and used a panel dataset between 2006 and 2017. The coefficients of forward and backward linkages are estimated by using the Rasmussen method, the study employs a basic linear panel data model, followed by various diagnostic tests to identify the problem of heteroscedasticity, autocorrelation / serial correlation, cross-sectional dependencies, multicollinearity, time-individual specific tests, and unobserved effects. The PCSE model was applied for robust standard error and the Hausman-Taylor IV model to check the robustness of the result generated in the linear panel data model. Despite the high prevalence of forward and backward intersectoral connections and the Lack of absorption capacity of local firms, the results show that FDI has little of an impact on the export performance of micro, small, and medium-sized businesses in India. This study adds to the existing literature on determining local firms’ spillover effect and absorption capacity in response to inward FDI.