Inward Investment and Market Structure in an Open Developing Economy: A Case of India’s Manufacturing Sector
Abstract
India announced series of liberalization measures since mid 1980s that inter-alia led to an unprecedented increase in the inflow of foreign direct investment (FDI). Evidence suggests that the rising inflows of FDI have influence on host country market structure though the direction is uncertain. Analytically, market structure has implications on the long run growth path of an economy through its effect on the allocation of economic resources among various economic activities including innovation. In this context, the objective of this paper is to analyze the bearing of FDI on market concentration with special reference to India’s manufacturing industries during the post-reform period. The study made use of firm level and product level data and panel regression techniques to fulfill the objective. The estimated model has shown a positive and significant influence of FDI on market concentration. If the result of the study is any indication, the increased inflow of FDI is likely to make India’s manufacturing sector more concentrated and calls for policy measures to mitigate undesirable outcomes of FDI inflows.Downloads
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