To examine the determinants of FDI in China and India and the causes for their difference.

Abstract:
This study aims to examine the determinants of FDI in China and India and the causes for their difference. Ordinary least squares models were first applied to analyse separately FDI determinants in China and India and then a panel data model was developed to explore the causes of the differences. It was found that China’s FDI was determined by inflation while India’s FDI was influenced by infrastructure and trade openness. Infrastructure was the main reason why India was lagging behind China. The results suggest that India needs to upgrade its infrastructure and create effective trade policies in order to attract FDI.

Key words: FDI, China, India, inflation, trade openness, infrastructure.
1. Introduction:
Multinational Enterprises (MNEs), comprising 82,000 parent companies, 810,000 foreign subsidiaries and an excess of inter-firm arrangements worldwide, have played an important and growing role in today’s global economy (UNCTAD, 2009). The world’s top MNEs are the prominent driver of international production. In 2008, they accounted for around 4% of world GDP[1] and had combined assets of $ 10.7 trillion, combined foreign sales of $ 5.2 trillion and employed 8.9 million people (Table 1-1).
Table 1-1:Snapshot of the World’s top 100 TNCs, 2006-07/08
Variable
2006
2007
2006-2007
% change
2008
2007-2008
% change