Is There Any Link Between FDI and Profitability in the Indian Manufacturing Sector?

Abstract

Although a plethora of studies examine the determinants of profitability, this study adds to existing literature by assessing whether foreign direct investment (FDI) inflows make any significant contribution to profitability. To do so, the article uses disaggregated annual data relating to the Indian manufacturing sector 2012−2019. Results obtained from employing panel data models showed that FDI inflows have a positive and significant impact on profitability. Further, our results indicate that FDI affects profitability only in the long run but not in the short run. Capital intensity and size do not affect the profitability of the Indian manufacturing sector. From a policy perspective, it is imperative for manufacturing industries in India to attract more FDI inflow in order to boost profitability in the long run.