Does Foreign Direct Investment Leads to Growth of Micro, Small & Medium Enterprises in India: An Empirical Analysis

Abstract

This study investigates the Spillover effects of inward foreign direct investments (FDI) and the probable absorption capacity of local firms (micro, small & medium enterprises) in India. To investigate the Spillover effects, we estimated the coefficients of the intersectoral linkages (backward & forward linkages) developed in economy and their respective performance in gross domestic production. Linear panel data model (fixed effects & random effects model), panel corrected standard error model and the Hausman Taylor instrument variable model employed to estimate the significant relationship between the variables. PCSE model provide robust standard error and control the problem of heteroskedasticity & autocorrelation, and Hausman Taylor model applied to deal with unobserved heterogeneity and check the robustness of the estimation of linear panel model. For the present study data collected for 27 industries of the economy (both manufacturing and service) from the year 2006-2017, since limited data are available for the study. Data collected from the MSME annual report, inputoutput & supply-use table from CSO, India, DIPP report for FDI data. The result indicates the negative relationship between inward FDI and gross domestic production of MSME sector, and forward linkages in economy significantly added to the GDP of the economy, indicating negative Spillover impact in upstream sector & positive Spillover in downstream sectors.