The determinants of FDI in the Indian Telecommunications Sector
There are several factors that influence the amount of FDI present for a country and in
specific sectors of that country. The determinants of foreign direct investment in economies have
been examined by various authors.51 Many of these studies have identified very useful variables
relating to the flow of FDI. However, the primary focus of their research has been estimating
total FDI flows at a national level. I will examine some sector-specific determinants of FDI for
the Indian telecommunications sector.
The variables below were chosen based on their potential relationship to the
telecommunications sector and their use in previous studies of FDI country flows. Most of the
variables below have been included in previous country studies of FDI determinants. All of the
variables and data (except FDI) are taken from the World Development Indicators database
produced by the World Bank.
• Data for foreign direct investment in the telecommunications sector was taken from the
Indian Department of Telecommunications website.52 The original data in rupees was
converted to US dollars at the Interbank exchange rate for comparative purposes.
• The gross domestic product (GDP) and changes in gross domestic product can indicate
the relative health and market size of an economy. The Indian GDP in US dollars, annual
percentage change in GDP, per capita GDP and percentage change in per capita GDP are
examined in the model.
51 A sample of such authors include: F. Root and A. Ahmed, “Empirical determinants of manufacturing direct
foreign investment in developing countries”, Economic Development and Cultural Change, no. 27, vol. 4 (1979):
751-768; Romita Biswas, “Determinants of Foreign Direct Investment”, Review of Development Economics, vol. 6,
no. 3 (2002):492-504; and Hubert Janicki and Phanindra Wunnava, “Determinants of foreign direct investment:
empirical evidence from EU accession candidates”, Applied Economics, no. 36 (2004):505-09.
52 Website address is http://www.investindiatelecom.com/Investment%20Policy/FDI%20inflow-year-wise.htm
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