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What Causes Outward Foreign Direct Investment (OFDI) from India into Least Developed Countries (LDCs)?AbstractAlthough Outward Foreign Direct Investment (OFDI) from India into Least Developed Countries (LDCs) has been increasing amid various initiatives and policy reforms undertaken by the Government of India viz., Duty-Free Tariff Preference Scheme, Asia Africa Growth Corridor etc., India still does not feature amongst the top ten investor economies in LDCs. This makes it imperative to understand what causes OFDI from India into LDCs? Do the host country (LDCs) market-seeking and resource-seeking factors help in pushing OFDI from India into LDCs? For this purpose, the paper employs Tobit regression model to empirically test the panel data of 13 LDCs during the period 2008-2018. The results indicate that OFDI from India in LDCs is both market-seeking as well as resource-seeking. It is also observed that OFDI in Asian LDCs is more than African LDCs. However, BITs between India and LDCs do not play a significant role in attracting FDI from India into LDCs. The paper presents important implications for policy makers in both India and LDCs. Keywords: Outward Foreign Direct Investment (OFDI), India, Least Developed Countries (LDCs), Tobit Regression ModelIntroductionEmerging economies from Asia Pacific region are becoming an important source of Foreign Direct Investment (FDI) for the global economy. Out of the total global FDI outflows, 37 per cent of it is accounted by developing economies in the Asia Pacific region (United Nations ESCAP, 2019). Foreign direct investment from developing and transition economies particularly from India, China, Malaysia and South Africa has shown a growing trend over the years (UNCTAD, 2011). During 2017, Outward Foreign Direct Investment (OFDI) from India more than doubled to $11 billion. A significant proportion of it was accounted by the state-owned oil and gas companies in India such as ONGC (UNCTAD, 2018a). The similar trend was reported in 2019, wherein multinationals from India were amongst the largest investors from the developing Asian sub-region (UNCTAD, 2020). Over the years, OFDI from India has seen a gradual rise in the primary sector which did not account for a significant proportion in India’s OFDI during 1980s and 1990s. In order to seek access to natural resources like oil and gas, Indian firms have started investing in the extraction of crude oil and natural gas. However, despite the increase in investment in primary sector, the maximum proportion of OFDI from India originates from service sector, followed by manufacturing sector and finally by primary sector (Pradhan, 2017). With respect to geographical distribution, it is observed that more than two-third of total OFDI from India goes to developing countries (Iqbal et al., 2018). Also, it is observed that emerging economies like China, Malaysia, India and South Africa are showing greater interests in boosting their trade and investment in Least Developed Countries (LDCs) (UNCTAD, 2011). The much-needed foreign investment in LDCs by these emerging economies is ultimately helping in boosting their economic growth and development.The United Nations define Least Developed Countries (LDCs) as “low-income countries confronting severe structural impediments to sustainable growth. They are highly vulnerable to economic and environmental shocks and have low levels of human assets.” Committee for Development Policy, a subsidiary body of United Nations, reviews the list of Least Developed Countries (LDCs) every three years and according to its latest review in March 2018, 47 countries qualified to be designated with the status of least developed countries. In its recent review, the committee adopted three criteria- per capita income, economic vulnerability and human assets to prepare the list of LDCs (UNCTAD, 2019a). Although, LDCs account for 13% of the world’s population, however, their share in world Gross Domestic Product (GDP) is less than 1.3 per cent and the contribution to world trade is even less at 0.9 per cent. Not just this, LDCs average real GDP per capita is estimated at 1.7 per cent of that of developed nations (United Nations Department of Economic and Social Affairs, 2018). The degree of underdevelopment in LDCs calls for integrating their economies with that of the world economy in order to boost their trade and investment.The predominant mode of LDCs entry into Global Value Chains (GVCs) is Foreign Direct Investment (FDI) (UNCTAD, 2018b). FDI flows represent a relatively high share in LDCs total investments. During the first decade of twenty-first century (2001-2010), FDI flows contributed significantly towards the capital formation in LDCs (UNCTAD, 2011). During 2013-2017, 21 per cent of the total capital flows to LDCs were represented by FDI (UNCTAD, 2018a). FDI undoubtedly plays a significant role in helping LDCs attain their sustainable development goals. By investing in poor countries, MNEs help eradicating poverty by generating employment (Winters et al., 2004), improves standard of living by offering quality products (Jain & Vachani, 2006) and enhances people’s access to education in LDCs (Driffield & Taylor, 2000). The importance of FDI has been rising in LDCs since a number of Fortune 500 companies are expressing greater interest in marking their presence in LDCs (UNCTAD, 2011). Also, to help LDCs in integrating their economies with that of world economy, various international support measures in the area of (a) international trade, (b) development cooperation and (c) support for participation in United Nations systems, have been implemented (United Nations Department of Economic and Social Affairs, 2018). Not just this, realizing the significance of FDI in boosting their economic development, LDCs themselves are taking greater initiatives in order to attract foreign investors. These measures ranges from setting up investment promotion agencies, entering into regional and bilateral investment agreements, relaxing their policy measures with respect to inward FDI as well as offering various fiscal incentives to the investors abroad (United Nations Secretariat, 2015). These policy measures are indeed helping LDCs in enhancing their trade relations with various countries particularly emerging economies like India, Brazil, China and Russia (UNCTAD, 2019a). Notwithstanding the significant role that foreign direct investment plays in fostering the growth and development of LDCs, not much efforts have been made in understanding the impact of various market-seeking as well as resources-seeking factors in attracting FDI in LDCs. Although certain attempts have been made to study the foreign direct investment in LDCs (Sauvant, 2015; Malgwi et al., 2006), however, till date, to the best of our knowledge, there hasn’t been any attempt made to study OFDI flows from India in LDCs. Over the years, India has been taking several initiatives to boost its bilateral ties with LDCs. The Government of India implemented the Duty-Free Tariff Preference (DFTP) scheme in 2008 to grant duty free market access to all LDCs. The government has also undertaken several strategic initiatives in order to strengthen its relationship with African countries such as “Focus Africa” programme, Asia-Africa Growth Corridor and India Africa Forum Summit. Having said that, in the light of various policy measures been undertaken, it becomes imperative to study the factors determining the outward foreign direct investment from India in LDCs. The aim of the present study is thus to examine the effect of host country (LDCs) market-seeking as well as resource-seeking factors on OFDI flows from India during 2008-2018. Since our dependent variable OFDI is a censored variable, we employ Tobit regression model to empirically test the panel data of 13 LDCs. The results from the study present important implications for policy makers in order to boost investment relationship between India and LDCs. FDI Trends and Patterns in Least Developed Countries (LDCs)In order to achieve the annual GDP growth rate of at least 7% in LDCs as put forward by Brussels Programme of Action (BPoA), attracting FDI has become one of the key strategies of LDCs. During the decade 2001-10, FDI inflows in LDCs exceeded foreign portfolio investment and all other investments combined, making it the most important external private capital flows for LDCs. In 2008, FDI flows accounted for 28 per cent of the LDCs Gross Fixed Capital Formation (UNCTAD, 2011). The proportion of FDI inflows in LDCs is small in comparison to developed and developing nations, however, for some LDCs particularly Liberia, Cambodia and Sierra Leone, FDI represented a relatively large proportion of their nation’s GDP in 2016 (UNCTAD, 2018b). During 2013-2017, 21 per cent of the total capital flows to LDCs were represented by foreign direct investment (UNCTAD, 2018a). Although, LDCs reported six-year low FDI inflows in 2017, however, they rebounded to US$24 billion in 2018, nearly 15 per cent increase from 2017. In 2018, Bangladesh and Myanmar stood at first position in terms of FDI inflows amongst all LDCs, followed by Ethiopia, Cambodia and Mozambique (figure1) (UNCTAD, 2019b). Albeit the recovery in 2018, FDI flows in 2019 again tumbled by 5.7% to US$21.1 billion (figure 2). Much of the decline in FDI during this period could be attributed to natural resources price shocks, since majority of LDCs are oil dependent countries which help them attract investments from abroad (UNCTAD, 2020). During 2001-10, FDI inflows increased in all the LDCs regions- Asia, West Africa, East Africa and others. While FDI flows in African LDCs mostly targeted extraction industries such as oil and mineral resources, for Asian LDCs it was the service industries such as electricity and telecommunications which received majority FDI flows. In African LDCs, manufacturing sector has not been able to attract much of FDI flows, mainly because of lack of skilled workers (UNCTAD, 2011). In 2017, while FDI flows for Asian and Oceanian LDCs rose, however, they declined by around 31% for Africa LDCs. FDI inflows in Asian and Oceanian LDCs are mostly driven by strong investment in real estate and telecommunication development. It is observed that investment in large scale infrastructure projects is significant for LDCs in order to attract FDI flows (UNCTAD, 2018a). In 2018, although FDI flows increased in both African as well as Asian LDCs, however, they touched a record high in Asian LDCs. Again, increased FDI flows in Asian LDCs were mostly driven by the investment in power generation as well as real estate projects. Also, as expected, FDI in Africa were mostly targeted in extraction and processing of natural resources (UNCTAD, 2019b). Figure 1: Top Five LDCs Recipients of Foreign Direct Investment in 2018 (billions of dollars) Source: (UNCTAD, 2019b)Figure 2: FDI Inflows in LDCs, 2000-2019 (Billions of Dollars and Per Cent)Source: (UNCTAD, 2020)Relationship between India and Least Developed Countries (LDCs)Over the years, India has nurtured its relationship with least developed countries by setting up long-lasting partnerships and bilateral relations with them. India has been expressing greater interest when it comes to extending its support and integrating with LDCs. India, in fact was actively engaged in promoting the idea of creating a separate category of LDCs in the 2nd UNCTAD session held in New Delhi in 1968. India has contributed in shaping the long-term sustainability in LDCs by extending its assistance in the form of technical expertise, infrastructure development and institutional strength (Ministry of External Affairs, 2011). Indian market is considered as one of the attractive destinations for LDCs exports, enabling them to expand their exports in India by nine-fold during 2003-2011. During the same period, Indian market stood at the fourth position for LDCs exports (United Nations, 2012). By an official notification on 13 August 2008, The Government of India implemented the Duty-Free Tariff Preference (DFTP) scheme to grant duty free market access to all LDCs. This means LDCs get the benefit of unilateral tariff preferences for all the products which are originated in LDCs and are imported into India. Subsequently, the Government of India amended the scheme in April 2014 wherein the coverage of tariff lines for duty free access to Indian market was increased further (International Trade Centre, 2015). As a support measure for LDCs, recently in May 2020 India decided to contribute towards the areas like broadband infrastructure and digital skills in order to promote the capacity building in LDCs. These measures were adopted owing to the fact that access to high speed broadband is still a distant dream for majority of the population in least developed countries (The Economic Times, 2020). Policy Measures for Boosting Trade, Development and Investment in LDCsMeasures Taken at International LevelThere are various International Support Measures (ISM) in the areas of trade, development cooperation and support for participation in the United Nations, that have been developed for least developed countries. Measures in the area of trade predominantly focuses on integrating LDCs with the world economy and increasing their presence at the global marketplaces. These trade related measures majorly provide preferential market access to LDCs for their goods and services, special treatment under WTO rules as well as support towards capacity building and technological development in these economies. “Duty free, quota free (DFQF)” market access and “more favourable rules of origin” provide preferential market access for LDCs exports (United Nations Department of Economic and Social Affairs, 2018). Duty Free, Quota Free Market AccessUnder this scheme, full or nearly full duty free, quota free market access has been granted by a number of economies around the globe to LDCs. To name a few, Australia, China, India, European Union, United States, Japan and many others have grated duty free access to the exports from LDCs. Some trading groups also like Asia-Pacific Trade Agreement (APTA) and South Asian Free Trade Area (SAFTA) also grant preferential trade treatment to LDCs within their group (United Nations Department of Economic and Social Affairs, 2018). Preferential Rules of OriginRules of origin are used to determine the benefit of preferential treatment that a product will get based upon the region in which it has been produced. The existence of strict rules of origin posit greater barriers and challenges for the economies to take the benefit of preferential market access. However, there are relaxations in the preferential rules of origin for LDCs in order to enable them to take the full benefits of preferential market access (United Nations Department of Economic and Social Affairs, 2018).Also, since 1981, there have been four United Nations Conferences on Least Developed Countries (LDC) every ten years (the last been held in May 2011 in Istanbul, Turkey) with each conference declaring a comprehensive programme of action for the forthcoming decade. Appendix A includes a brief discussion about these comprehensive programme of actions. Measures Taken by Least Developed Countries (LDCs)Over the years, LDCs themselves are adopting various policy measures to upgrade their investment environment which will ultimately help them in boosting their growth and development. Among others, one such measure is the establishment of investment promotion agency (IPA) in order to assist foreign investors by streamlining their investment procedures. Many LDCs have also taken the membership of World Association of Investment Promotion Agencies in order to ensure that foreign investors are not experiencing difficulties with respect to FDI procedures. Other measures include reducing their tax rates and eliminating FDI related restrictions for attracting investors abroad. For effective integration into world economy, LDCs are placing greater emphasis on enhancing their cooperation and relationship at bilateral, regional and multilateral level. Not just this, they are also taking measures for simplifying and streamlining the application process for investment and business registration, ensuring free transfer of foreign exchange and ensuring equal treatment to foreign investors (UNCTAD, 2011). Moreover, LDCs are showing active participation in signing Double Taxation Treaties (DTT) and Bilateral Investment Treaties (BIT) which is indeed creating a conducive investment environment in LDCs. By 2010, 188 DTTs and 455 BITs were concluded by LDCs (UNCTAD, 2011). Various LDCs have provided a number of fiscal and other incentives in order to attract foreign investors. Bangladesh offers tax holidays to foreign investors, allow duty-free imports for 100% exporters and reduction in import duties on machinery and capital goods. Also, for all the investments made in strategic industries, Sudan offers tax and custom privileges under its New Investment Act, 2013. Haiti also provides custom and tax advantages if investment is made in accordance to certain norms. Not just this, to enhance their relationship with partners abroad, LDCs are part of various regional economic agreements like ASEAN Comprehensive Investment Agreement, South African Development Community, ASEAN-China Investment Agreement, to name a few. Also, the fact that ease of doing business policies play a major role in the promotion of FDI, some LDCs have started paying attention in this respect too. As a result, Rwanda stood at 32 rank in World Bank’s 2014 Boing Business Rankings of countries followed by Samoa at 61, Vanuatu at 74, Solomon Islands at 97 and Zambia at 83 (United Nations Secretariat, 2015). Measures Taken by Government of IndiaAccording to a report by UNCTAD in 2019, a large proportion of the fund infusion into LDCs in the form of Official Development Assistance (ODA) or other official flows could be attributed to emerging economies like India, Brazil, China, Turkey and Mexico. Also, during 2015-2017, the exports from LDCs to India, China, Brazil, Russia and South Africa have increased from US$44 billion to US$52 billion (UNCTAD, 2019a). Amongst all the developing countries, India was the leading nation making maximum greenfield FDI (approximately US$8 billion) in LDCs in 2012-13. As discussed in section 3, the Government of India implemented the Duty-Free Tariff Preference (DFTP) scheme on 13 August 2008 to grant duty free market access to all LDCs. This means LDCs get the benefit of unilateral tariff preferences for all the products which are originated in LDCs and are imported into India. Subsequently, the Government of India amended the scheme in April 2014 wherein the coverage of tariff lines for duty free access to Indian market was increased further (International Trade Centre, 2015). The scheme aided LDCs in substantially increasing their exports to the India market. Moreover, Government of India has been taking several strategic initiatives in order to strengthen its relationship with African countries that constitutes major proportion of LDCs. For instance, Government of India launched “Focus Africa” programme in 2002 in order to boost its trade and investment relations with Africa. The aim of the programme is to tap the tremendous trade potential in sub-Saharan African region. The programme focused on promoting the trade of specific commodities e.g. cotton yarns, drugs, machinery and instruments, and telecom and information technology between India and African countries. Under this programme, Indian Government extended financial assistance to multinationals and trade agencies in order to boost their trade and investment with African countries (The Economic Times, 2002). Also, India launched Asia-Africa Growth Corridor in 2017 in order to boost economic cooperation between the governments of India, Japan and multiple African countries. The aim of India is to develop quality infrastructural facilities in African countries in the areas of health, agriculture, skill enhancement and disaster management. It was aimed at enhancing the interconnectedness between Asia and Africa in order to develop a free and open Indo-Pacific region (Research and Information System for Developing Countries, 2017). To further enhance the ties between India and Africa, India-Africa Forum Summit is held once in every three years, whose objective is to strengthen the economic cooperation between India and Africa with respect to peace and security, energy access, education and skill enhancement and sustainable development (Beri, 2015). Theoretical Background: Eclectic ParadigmJohn H. Dunning’s Eclectic Paradigm or OLI (Ownership, Location, Internalisation) framework was first propounded in 1979. In his Eclectic Paradigm, John H. Dunning postulates that a multinational corporation will engage in overseas investment only when it has obtained three types of advantages- Ownership Advantages (O), Location Advantages (L) and Internalization Advantages (I). A firm acquires ownership advantages once it has developed production techniques, skills and strong brand image which helps the multinational in competing with local firms abroad. Location advantages are with respect to host country which include the endowment of rich natural resources, tax incentives, skilful labour, etc. which makes the host country an attractive destination for investment by foreign investors. Internalisation advantages are the ones wherein a multinational firm attains benefits in self production rather than outsourcing it to the other party. As a result, a firm will prefer to set up its production facilities in a host country in order to keep its operations in-house only (Dunning J. H., 1982). Thus, it was said that ownership (O) and internalisation (I) advantages are push factors, the attainment of which pushes the multinational firm to engage in foreign direct investment, while, location (L) advantages are pull factors, the procurement of which makes the host country attractive to pull investment from investors abroad (Anh & Ngoc, 2016). For the host country, L advantages are important since a multinational corporation will not invest in a host country unless it has some locational advantages attached to it. With respect to locational advantages, the foreign direct investment can have four motives, or it can be divided into four types of investment seeking; market-seeking, resource-seeking, asset-seeking and efficiency seeking. Market-seeking FDI is one where the investing firms benefits from serving the host market. FDI will be market-seeking if the host country market size is large, there is growing consumer market, the economic standards and income level of the people living in host nation is good and the host country has stable economic and political environment. FDI is resource-seeking when investing firm seeks to access the endowment of natural resources, skilled human resources and infrastructural facilities in the host nation. FDI is strategic asset-seeking wherein a multinational firm wants to seek access to host nation’s technological capabilities, local knowledge and innovation capabilities. The access to these capabilities provides a firm with the information advantages over other competitors in the host country. Finally, FDI is efficiency-seeking when it helps the investing firm to minimize the overall cost of production, ultimately enhancing the efficiency of the firm. The objective here is to rationalise the production process by developing an efficient production network (Dunning & Narula, 1994). As we have already discussed that FDI in LDCs is mainly targeted towards abundant natural resources of African LDCs and rising infrastructural facilities of Asian LDCs. Also, they have started focussing on developing strategic relationship with partners abroad in order to boost investment in their economies. Hence, at this stage, we believe that it is market-seeking as well as resource-seeking factors that play a major role in attracting FDI to LDCs. With this conjecture, we build this paper upon the market-seeking as well as resource-seeking locational advantages of the OLI framework which shall help push OFDI from Indian into LDCs. Literature ReviewForeign Direct Investment (FDI) can act as a catalyst in promoting capacity building in least developed countries. Such investment will not only help in bringing the much-needed technology, income, employment, capital and managerial know-how in LDCs but the linkages and spill over benefits from such investment will also help in strengthening the domestic firms and human resources in LDCs. This ultimately stimulates their growth and development and help in improving their standards of living (Kumari & Sharma, 2017). Traditionally, natural resources were the main source of FDI in LDCs, however the trend has been changing gradually. During 2003-2010, the share of greenfield FDI projects in primary, manufacturing and services was 55%, 28% and 17% respectively, however, these shares were 21%, 28% and 51% respectively during 2011-13. From the home country perspective too, LDCs represent greater investment opportunities since the markets in developed nations are already saturated and hence MNCs seek for potential customers in underdeveloped nations (Musteen et al., 2013). It thus becomes imperative to understand the role of various resource-seeking as well as market-seeking factors in LDCs that help them in attracting FDI from India. The remaining section of literature review discusses these factors in detail and establishes their relationship with OFDI from India. Resource Seeking Factors and FDI in LDCsEndowment of rich resources in host country is one of the important determinants in attracting FDI to their economies (Ezeoha & Cattaneo, 2012; Asiedu, 2006). In a study it was evident that FDI in developing economies is more resource seeking than market seeking (Wadhwa & Reddy, 2001). Generally, developed countries obtain natural resources by investing in LDCs where the extraction of such resources is cheaper and hence bolster their profit (Jorgenson et al., 2009). Currently, 33 out of 47 Least Developed Countries (LDCs) belong to Africa (UNOHRLLS, 2020b). However, Africa being endowed with rich mineral resources becomes an attractive destination for foreign direct investment, despite the existence of inefficient and weak institutions (Ezeoha & Cattaneo, 2012). FDI in Arab economies is also resource seeking since they are endowed with the abundance of oil supply. Hence, these economies must focus on increasing the excavation of new natural resources, in order to attract advanced technologies from MNEs abroad (Aziz & Mishra, 2016). It was also evident that although emerging economies don’t prefer to invest in countries having weak institutions, however this negative effect diminishes if the host country is endowed with enormous natural resources. This means they are willing to invest in “resource curse” economies, that is the countries who are suffering from weak institutions but are endowed with substantial natural resources (Aleksynska & Havrylchyk, 2013). However, it is also observed that the availability of resources stimulate resource FDI but at the same time crowds out non-resource FDI. As a result, natural resource endowed countries suffer from lower aggregate amounts of FDI (Poelhekke & Van der Ploeg, 2010). In such countries, there is high concentration on resource expropriation which crowds out the manufacturing sector of the economy. This ultimately diminishes the exports of finished products from the country and hence leads to slow economic growth (Sachs & Warner, 2001). Thus, it becomes worthwhile to understand the impact of natural resources in attracting FDI in Least Developed Countries (LDCs). LDCs are characterized as low-income countries facing impediments in attaining their sustainable goals. However, it is clearly evident that LDCs are endowed with abundant natural resources, particularly African LDCs. More than 80% of the FDI inflows in LDCs were accounted by resource rich African nations (UNCTAD, 2011). According to The World Investment Report 2019, one of oil rich LDC- Chad, doubled its FDI inflows to US$ 662 million in 2018, majority of being concentrated in new oil projects. The same report indicates that the new oil and gas projects in Mozambique and Myanmar will help both the countries in attracting significant levels of FDI in the coming years (UNCTAD, 2019b). Thus, we propose,H1 a: The Outward Foreign Direct Investment (OFDI) from India to LDCs increases as the endowment of natural resources in LDCs increases Not just natural resources but the availability of educated labour force also helps in attracting FDI in a country (Asiedu, 2006; Campos & Kinoshita, 2003). Earlier, when the education system in LDCs was governed by European Colonizers, the indigenous literary practices in schooling were neglected and limited knowledge sharing was there. As a result, in LDCs, the education system was not able to generate graduates who are qualified enough to seek jobs at the global marketplaces (Jarvis, 2006; Ubah, 1980). Skill deficit in the human capital of LDCs is the major constraint in achieving the competitiveness at the international marketplaces. The reason being the limited investment in human resource training and lower levels of secondary and tertiary education enrolment (Adhikari, 2019). The education level of human resources in host country is an important determinant of FDI since educated human resources help in raising the production efficiency and thereby boosting FDI flows in host country (Kahouli & Maktouf, 2015; Bhavan et al., 2011; Hejazi, 2009). While entering the foreign markets, MNEs tend to invest a significant proportion of their capital in R&D activities in order to generate new technologies. Hence, they prefer educated human resources in the host country that is able to handle and work well with this new technology (Aziz & Mishra, 2016; Hakro & Omezzine, 2011). Multinationals these days not only look for cost cutting but also seek for highly qualified and skilled human resources in order to enhance operational efficiency (Mohiuddin & Su, 2013; Lewin et al., 2009). The presence of the educated and skilled labour force gives a sense of confidence to the investors that their investment will be managed effectively (Lemi & Asefa, 2003; Rjoub et al., 2017).Thus for the long term development, it is important for policy makers to upgrade their education system and make it compatible with the global standards (Aziz & Mishra, 2016). It is observed that in order to develop competent public servants, it is important that LDCs should have effective human resource development programs focusing on employee training (Tessema et al., 2012). In LDCs, specifically in Africa, government initiative to invest in education is likely to deliver positive macroeconomic results, ultimately leading to strong economic development (Basten & Cuaresma, 2014). Thus we propose,H1 b: The Outward Foreign Direct Investment (OFDI) from India to LDCs increases as the quality of human resources in LDCs improvesAlso, good infrastructure in a country helps in attracting FDI from abroad (Asiedu, 2006; Campos & Kinoshita, 2003). Infrastructure is considered as one of the most important resource seeking factor that helps in attracting more FDI. As the infrastructure of the country develops, the productivity of the investment improves and hence FDI flows rises (Loree & Guisinger, 1995; Wheeler & Moody, 1992). Infrastructural development in an economy in seen in several areas, one of which is the number of internet users. As the number of internet users in a country increases, its ability to attract FDI also increases. This is because, internet can play a significant role in reducing the distance between the countries and hence makes it favourable for the countries to communicate (Choi, 2003; Kahouli & Maktouf, 2015). Among developing countries, LDCs are categorized at the bottom of the development scale since they have very challenging environment (Cuervo-Cazurra & Genc, 2008). According to UNCTAD statistics, African LDCs exhibit road density of just 15% of that of developing nations (UNCTAD, 2015). Also, the electricity coverage in more than 15 LDCs is less than 25% (UNCTAD, 2017). While shifting their production base to LDCs, firms face challenges, particularly those from developed economies, since the quality of infrastructure in terms of transportation networks, communication networks and distribution channels with which they work in their home country is not present in LDCs (Prahalad & Hammond, 2002; Prahalad & Lieberthal, 1998). Also, MNCs whose business models have been developed in wealthier economies often face challenges while investing in LDCs since they lack appropriate infrastructural facilities (Halter & Arruda, 2009; Karnani, 2007). However, LDCs represent huge growth potential and can act as an important source of revenue for MNEs (Prahalad, 2004). To give an example, during 1996-2003, the growth in mobile telephony in Africa has been faster than any other region of the world, witnessing an average annual growth rate of 78% (Cuervo-Cazurra & Genc, 2008). Also, in 2018, seeing the growth potential of LDCs, MNEs from the United States and China made large scale investment in power generation infrastructure of LDCs. According to The World Investment report of 2019, the recent development of industrial parks in Ethiopia will help country to attract FDI inflows exceeding US$ 5 billion in the coming years (UNCTAD, 2019b). Not just this, under the Enhanced Integrated Framework (EIF) programme, major infrastructural development has been seen in select LDCs, ultimately contributing in enhancing their market attractiveness and competitiveness. Hence, we propose,H1 c: The Outward Foreign Direct Investment (OFDI) from India to LDCs increases as the quality of infrastructure of LDCs improves Market Seeking Factors and FDI in LDCsLeast Developed Countries (LDCs) are characterized with low levels of development but large consumer base, hence offering greater potential for MNCs to explore (Musteen et al., 2013). Greater market size helps in attracting FDI from countries abroad (Root & Ahmed, 1978; Milner & Pentecost, 1996; Nunnenkamp, 2002). The market size of an economy gives an idea of its economic standards, growth and development; and hence any improvement in these indicators help a nation in attracting more FDI (Rjoub et al., 2017). While investing abroad, multinationals are not just searching for production site but also a growing market for their products. Thus, as the market size increases, economies are able to attract more investment from multinationals (Na & Lightfoot, 2006; Blomstr?m & Lipsey, 1991; Belkhodja et al., 2016). Multinationals always prefer a well-built economy where the possibility of capturing a greater market share is high (Janicki & Wunnava, 2004). Also, it is believed that higher market size of an economy is an indicator of higher per capita income and higher levels of development, which in turn attract foreign investors to invest in such economies (Kumari & Sharma, 2017). However, since developed economies are usually characterized with ageing population and slow economic growth, it stimulates multinationals to look for developing economies for investment opportunities (Belkhodja at al., 2016). Further, LDCs represent greater investment opportunities since the markets in developed nations are already saturated and hence MNCs seek for potential customers in underdeveloped nations (Musteen at al., 2013). Hence, we propose, H2 a: The Outward Foreign Direct Investment (OFDI) from India to LDCs increases as the market size of LDCs increasesAnother characteristic determining the growth of an economy is its income level. It is observed that as the Gross National Income (GNI) of an economy increases, its ability to attract inward FDI also increases. This happens because the high levels of GNI signals the growth of an economy and thus attracts more investors (Turnbull at al., 2016). Gross National Income (GNI) per capita is one the defining criteria for LDCs. According to the current definition, if for any country GNI per capita falls below US$ 1025 then that country is identified as LDC by United Nations (UNCTAD, 2019a). GNI being the important criteria in defining LDCs, it thus makes it imperative to study the impact of LDCs national income on its inward FDI. A very limited literature in this area indicates that MNEs from emerging economies prefer to invest in those LDCs where the average income of the citizens is high. Thus, LDCs having higher GNI per capita are able to attract more FDI from investors abroad (Cuervo-Cazurra & Genc, 2008). LDCs exhibiting rapid economic growth and higher per capita income attract more FDI since it signals government initiative in adopting more rational policies in their economy (Lim, 1983). According to a review conducted in 2018, 17 out of 47 LDCs had a GNI per capita above the graduation threshold (United Nations Department of Economic and Social Affairs, 2018). The statistics indicate that several LDCs are experiencing growth in their levels of gross national income, ultimately leading to their economic growth. Thus, we propose, H2 b: The Outward Foreign Direct Investment (OFDI) from India to LDCs increases as the national income of LDCs increasesAlso, trade openness helps economies in attracting investment from foreign investors (Asiedu, 2006; Campos & Kinoshita, 2003). Trade and investments are complimentary to each other. Thus, as the trade openness increases, the integration between the economies also increases and hence helps in attracting more FDI (Deichmann, 2001; Janicki & Wunnava, 2004). As the economy opens its trade, the relationship between the countries strengthen and hence provides investors with greater investment opportunities (Tintin, 2013). A study on Vietnam indicates that as the bilateral trade between trade with the foreign partners increases, the country is able to attract more FDI from such partners abroad (Iamsiraroj, 2016; Vo, 2018). Opening up of the trade aids the investor in better understanding the host country local market conditions and hence trade openness helps the host country in attracting FDI (Aziz & Mishra, 2016; Elfakhani & Matar, 2007). For instance, in 2017, Haiti (one of the LDCs) reported record high FDI inflows in its export-oriented textile industry due its duty free access to the US market (UNCTAD, 2019b). Also, as the bilateral relations between the countries enhances, the FDI flows between them also increases (Laabas & Abdmoulah, 2009). Preferential Trade Agreements (PTA) help in attracting FDI by strengthening the relationships between the countries and hence removing all the obstacles in fully exploiting the benefits of preferential treatment (Aziz & Mishra, 2016; Cardamone & Scoppola, 2012). These agreements promote investment between the countries by improving the overall provisions in the areas of dispute settlement, competition policy, investment and intellectual property rights (Aziz & Mishra, 2016; Medvedev, 2012). Back in 2001, during the Third UN Conference on the Least Developed Countries, 29 Bilateral Investment Treaties (BIT) were signed by nine LDCs with both developed and developing nations around the globe, in order to pave the way for rising FDI inflows and ultimately economic growth (UNCTAD, 2001). They are showing active participation in signing Double Taxation Treaties (DTT) and Bilateral Investment Treaties (BIT) which is indeed creating a conducive investment environment in LDCs. By 2010, 188 DTTs and 455 BITs were concluded by LDCs (UNCTAD, 2011). Also, according to The Least Developed Countries Report of 2018, all LDCs all the signatories to Bilateral Investment Treaties (BIT) which lead to a significant growth of 276% in their export volumes in between 2000-2016 (UNCTAD, 2018b). If we see at the policy level, sustainable development goals for LDCs aim at doubling the share of LDCs global exports by 2020. Hence these goals aim at offering market access opportunities for LDCs. Not just this, several economies around the globe also offer LDCs various market access opportunities with the help of unilateral preferential schemes (Adhikari, 2019). For instance, Government of India implemented the Duty-Free Tariff Preference (DFTP) scheme in 2008 to grant duty free market access to all LDCs. This means LDCs get the benefit of unilateral tariff preferences for all the products which are originated in LDCs and are imported to India (International Trade Centre, 2015). Hence, we propose,H2 c: The Outward Foreign Direct Investment (OFDI) from India to LDCs increases as the Trade Openness in LDCs increasesH2 d: The Outward Foreign Direct Investment (OFDI) from India to LDCs increases as LDCs sign more Bilateral Investment Treaties (BIT) with IndiaData and MethodologyData Sources and VariablesThe present study aims at analysing the impact of various market-seeking as well as resource-seeking factors on Outward Foreign Direct Investment (OFDI) by Indian multinationals in Least Developed Countries (LDCs). The study empirically tests the panel data of 13 LDCs- Afghanistan, Bangladesh, Bhutan, Malawi, Mali, Mauritania, Mozambique, Nepal, Niger, Rwanda, Senegal, Sierra Leone and Tanzania from 2008-2018. The LDCs in our data set belong to African and Asian region. For the purpose of identifying LDCs, we follow the most recent review by United Nations in March 2018 that identified 47 LDCs (UNCTAD, 2019a). The list includes 31 African LDCs, 8 Asian LDCs, 7 Island LDCs and 1 American LDC. Our sample of 13 LDCs include 9 African and 4 Asian LDCs, hence not restricting it to any specific region and thereby rendering more generalizability. We have restricted our sample size to 13 LDCs and our sample period to 2008-2018 due to limited availability of data for the underlying variables.We intend to conduct our study based upon the sample of LDCs for various important reasons. First, LDCs represent huge growth potential and can act as an important source of revenue for MNEs. Seeing this growth potential, MNEs from various regions are showing greater interests in making large scale investment in LDCs. In recent years, certain LDCs themselves have started making investment in their infrastructure projects to attract FDI from investors abroad (UNCTAD, 2019b). Hence, it becomes important to understand the stance of India in tapping on the rising growth potential in LDCs. Second, although certain attempts have been made to study the foreign direct investment in LDCs (Sauvant, 2015; Malgwi et al., 2006), however, till date, to the best of our knowledge, there hasn’t been any attempt made to study the impact of various market-seeking as well as resource-seeking factors on OFDI by India in case of LDCs. Third, over the years there has been various international and regional measures taken (discussed in section 3) to boost trade and investment in LDCs, hence in the light of these policy measures it becomes imperative to understand the investment relationship between India and LDCs.The variables and the data sources for all the underlying variables studies in the paper are listed below (Table 1):Dependent VariableOutward Foreign Direct Investment (OFDI)The variable measures OFDI from India in Least Developed Countries (LDCs). Data corresponding to OFDI is collected from monthly Reserve Bank of India (RBI) reports on overseas investment. The report provides the data on monthly overseas investment by Indian multinationals in countries abroad. From that dataset we created a panel of 13 LDCs which are receiving investment by Indian multinationals for a period of 11 years from 2008-2018.Independent VariablesThe study examines the impact of various market-seeking and resource-seeking factors in LDCs that help attract investment in these countries. The study employs three resource- seeking variables viz., natural resource endowment, human resource development and infrastructure development and four market seeking variables viz., market size, GNI per capita, trade openness and Bilateral Investment Treaties (BIT). The description of the variables and their data sources is listed below:Natural ResourcesThe variable measures the endowment of natural resources in our sample countries. Since LDCs, particularly African LDCs are characterized as being endowed with abundant natural resources, hence it becomes worthwhile to analyse the impact of natural resource endowments in LDCs in attracting FDI from India. Natural resource endowments is measured by total natural resources rents which includes oil rents, natural gas rents, coal rents, mineral rents and forest rents that a country receives. The data corresponding to this variable is collected from World Bank website ().Human Resource DevelopmentThe variable measures the quality of human resources available in LDCs. MNEs around the globe prefer to invest in countries where there is availability of skilled human resources who can handle and work well with new technology. In line with Campos and Kinoshita (2003), the proxy for educated human resource is taken as total number of people enrolled in secondary education in a country. The data corresponding to this variable is collected from World Bank website ().Infrastructure DevelopmentThe variable measures the level of infrastructure development in LDCs. MNEs prefer to invest in countries which have appropriate infrastructural facilities. Although LDCs are characterized with lack of infrastructure development, however, in recent years, various LDCs are taking initiative towards the development of infrastructure in their countries. In line with Wheeler and Moody (1992), we use three components- Air Transport Freight, Access to Electricity and Mobile Cellular Subscription for measuring infrastructure development in our sample countries. However, to retain the dimensionality of the data and reduce multicollinearity among variables, we create a new variable known as Infrastructure Index using Principal Component Analysis (PCA). This composite index developed with the help of PCA is then used as a proxy for infrastructure development. The data for air transport freight, access to electricity and mobile cellular subscription is collected from World Bank website ().Market SizeAs already discussed, greater market size helps in attracting FDI from investors abroad since it gives an idea of the country’s economic standards, growth and development. Larger market size also indicates greater demand by country’s large population base. In line with Nunnenkamp (2002), Wheeler and Moody (1992), Tsai (1994), we have used country’s total population as the proxy for its market size. The data corresponding to this variable is collected from World Bank website ().Income Level of the CountryAnother characteristic determining the growth of an economy is its income level. Since Gross National Income (GNI) per capita is one of the defining criteria for LDCs, hence is important to study the impact of LDCs income level in attracting FDI. Income level of a country is measured by its GNI per capita. The data corresponding to this variable is collected from World Bank website ().Trade OpennessTrade openness indicates the extent to which a country has liberal trade activities with the countries abroad. A country with liberal trade activities is able to strengthen its relationship with other countries and hence help in attracting more FDI. In line with Aziz and Mishra (2016) and Tintin (2013), trade openness is measured as the ratio of the sum of imports and exports to GDP. The data corresponding to this variable is collected from World Bank website ().Bilateral Investment Treaty (BIT)The variable measures the Bilateral Investment Treaties (BIT) signed between LDCs and India during our sample period. BIT is an agreement between two countries which lays down the terms and conditions of foreign investment in each other’s countries. BIT, thus helps a nation in developing its bilateral ties with other nations and hence aid in attracting more FDI. In our study, BIT is a binary variable which takes up a value 1 for all those years where BIT is signed between India and LDCs and 0 otherwise. The data corresponding to this variable is collected from UNCTAD (investmentpolicy.).Control VariablesIn all our regression models, we control for two variables. First, inflation, which measures the annual percentage change in the basket of goods and services in an economy. It is measured by consumer price index. The data corresponding to this variable is collected from World Bank website (). Second, exchange rate, which determines the conversion rate at which a nation’s currency is exchanged for another. The data corresponding to this variable is collected from World Bank website ().Table 1: Description of VariablesVariable NameAbbreviationSourceOutward FDI (log)logOFDIEducation of Human Resources (log)LogeducNatural Resource Endowments (log)LognaturalInfrastructure Development IndexInfra, (Index is built by authors using Principal Component Analysis)Market Size (log)logpopGNI per capita (log)logGNITrade OpennesstradeopBilateral Investment Treaties BITinvestmentpolicy.Country Dummy (1=African LDCs, 0=Asian LDCs)countrydummy-Country Dummy*Education of Human Resources (Interaction Term)countrydummy_educ-Country Dummy*Natural Resource Endowments (Interaction Term)countrydummy_natural-Country Dummy*Infrastructure Development Index (Interaction Term)countrydummy_infra-Country Dummy*Market Size (Interaction Term)countrydummy_pop-Country Dummy*GNI per capita (Interaction Term)countrydummy_GNI-Country Dummy*Trade Openness (Interaction Term)countrydummy_tradeop-Country Dummy*Bilateral Investment Treaties (Interaction Term)countrydummy_BIT-MethodologyThe study employs Tobit regression model to estimate the effects of host country (LDCs) market-seeking as well as resource-seeking factors on OFDI flows from India. Tobit models are suitable in cases where the regression model includes a censored or limited dependent variable so that its value is observable only at a specific range. Thus, when dependent variable follows a mixed distribution wherein it takes a value zero (0) when the event does not happen while follows a continuous distribution for all the values greater than zero, it makes Ordinary Least Square (OLS) a biased and unsuitable method in such cases. Under OLS, all the observations where latent variable (y?*) ≤ 0 are ignored and hence, the distribution of error terms becomes a truncated normal distribution (Maddala, 1983) resulting in biased estimators. Hence, Tobit regression model becomes a more suitable approach. The Tobit model supposes that there is latent variable y?* which linearly depends upon the set of independent variables. The observable variable y? becomes equal to the latent variable y?* in all the cases where latent variable is above zero, and zero otherwise. In the panel Tobit model, the latent variable y?* is specified as in equation 1,lefttop (1)Herein, y??* can be observed if y??* > 0 and cannot be observed where y??* ≤ 0. The observed variable y?? is specified as in equation 2,lefttop (2)In line with past researchers, we adopt random effects Tobit model due to the limitation of inconsistent estimators associated with fixed effects model. The random effect logarithmic likelihood function of ?, σ??, σα? is specified in equation 3 (Cameron & Trivedi, 2005),lefttop (3)Our dependent variable i.e. Outward Foreign Direct Investment (OFDI) is a censored variable as there are instances when there is no overseas investment by Indian multinationals in LDCs for the period 2008-2018. Hence, our dependent variable takes a value zero for all those periods when there is no OFDI while follows a continuous distribution otherwise. As a result, we observe censoring from left. Hence, the study employs Tobit regression model to efficiently account for the problem of left censoring. To observe the impact of various resource-seeking and market-seeking factors on OFDI from India in LDCs, we present the following models:Resource-Seeking Models Model 1Model 2Model 3Model 4Model 5Market-Seeking ModelsModel 6Model 7Model 8Model 9Model 10Model 11Model 1 to Model 5 are resource-seeking models while Model 6 to Model 11 are market-seeking models. In model 1, we have taken three resource-seeking factors- human resource development, natural resource endowment and infrastructure development along with country dummy taking a value 1 for African LDCs while a value 0 for Asian LDCs. Country dummy will help us understand and report the differences in FDI flows in African LDCs to that of Asian LDCs. Further, we take the interaction of country dummy with each of our resource-seeking variable- human resource development, natural resource endowment and infrastructure development in model 2, 3 and 4 respectively. Since there are structural differences between African and Asian region with respect to various factors such as resource endowments, infrastructure development, etc., it becomes worthwhile to interact the dummy with various independent variables to capture the specific impact on Asian and African LDCs. Finally, we take the interaction of country dummy with each of our resource-seeking factor simultaneously in model 5. In model 6, we take market-seeking factors- market size, income level of the country, trade openness and BIT along with our country dummy. Again, the interaction between country dummy and each of our market seeking factor- market size, income level of the country, trade openness and BIT is taken in model 7,8,9 and 10 respectively. Finally, the interaction of country dummy with each of our market-seeking factors is taken simultaneously in model 11. In all the above models, we take inflation and exchange rate as our two control variables. Results and DiscussionTable 2 presents descriptive statistics for the underlying variables in our study, while also highlighting the differences between African LDCs and Asian LDCs. The statistics indicate that Asian LDCs on an average receive higher FDI from India in comparison to African LDCs. With respect to various market-seeking factors viz. market size (population), GNI per capita and trade openness, it is observed that the mean values of African LDCs and Asian LDCs do not differ significantly. However, they do report differences with respect to various resource-seeking factors viz. education of human resources, natural resource endowments and Infrastructure Development Index. As expected, African LDCs are endowed with greater natural resources in comparison to Asian LDCs. With respect to education of human resources as well infrastructural development, Asian LDCs have higher mean values in comparison to African LDCs.Table 2- Descriptive Statistics for VariablesVariablesFull SampleAfrican LDCsAsian LDCsMeanStd DevMinMaxMeanStd DevMinMaxMeanStd DevMinMaxOFDI (logOFDI)0.39182.2957-4.34287.8818-0.31192.2867-4.34287.88181.54671.8095-2.0575.2334Human Resource Education (logeduc)13.59181.338610.860816.579913.29130.700811.484614.580214.19291.978310.860816.5799Natural Resource Endowments (lognatural)1.73441.1891-0.90023.99592.38550.64581.10803.99590.26960.7390-0.90021.6400Infrastructure Development Index (Infra)3.50e-081.0000-1.29721.7527-0.71420.5438-1.29720.66440.98620.5342-0.13451.7527Population (logpop)16.53321.245413.417418.899116.46790.700115.008217.846516.68011.993113.41718.8991GNI per Capita (logGNI)6.67310.52375.82897.99636.57200.45645.82897.52296.90610.59576.06377.9963Trade Openness (tradeop)0.62740.22480.32231.31980.63520.21310.32231.31980.60970.25120.35301.1592The results for random effects Tobit model are reported in Table 3. The table presents the marginal effects for the impact of various resource-seeking and market-seeking factors on OFDI from India in LDCs. It is observed that all the resource-seeking as well market seeking models are significant since the p-value is less than 0.05. The corresponding Wald Chi2 and Log Likelihood values are presented in Table 3. Model 1 to model 5 are resource-seeking models while model 6 to model 11 are market-seeking modelsResults for Resource-Seeking ModelsIn all the resource-seeking models, results indicate that endowment of natural resources in LDCs has a significant and positive relationship with OFDI from India. Hence, we fail to reject our hypothesis H1 a. The results were highly expected since it has been observed that over the years foreign investment in LDCs have majorly been for natural resource-seeking. These results are also consistent with the statistics presented in World Investment Report (2019) which indicates that in 2018, the abundance of natural resources played a significant role in attracting foreign investments in LDCs, particularly in African LDCs. Existence of large pool of natural resources, particularly oil, make LDCs an attractive destination for investment by India, the country being the third largest importer of oil in the world.Similarly, education of human resources in LDCs also has a significant and positive impact on OFDI from India in all our resource-seeking models. Thus, we fail to reject our hypothesis H1 b. The results are consistent with past researchers Kahouli and Maktouf (2015), Bhavan et al., (2011) who have established positive relationship between the development of human capital in a country and its ability to attract more FDI. In today’s competitive world it is not just the cost or the quantity of human resources which matter, but the quality of human resources plays a significant role in attracting FDI in the country. Skilled human resources help in raising the production efficiency since they are able to work well with advanced technology. Human resource development is particularly critical for LDCs since it is one of the criteria which defines the development in LDCs. Development of human resources has been the focal point of every ten-year Programme of Action for the growth and development of LDCs. Hence, the development of human resources in LDCs help in restoring investors’ confidence, since it signals greater efforts and participation on part of LDCs towards the efficient development of their human resources. Results indicate that except for model 5, in all other resource-seeking models, infrastructure development in LDCs is insignificant in attracting FDI from India. Hence, we have sufficient evidence to reject our hypothesis H1 c. Until now, infrastructure development has not been the focal point in many LDCs, particularly African LDCs. Reports by United Nations indicate that road density and electricity coverage in LDCs has been low over the years (UNCTAD, 2015; UNCTAD, 2017). The communication and transportation networks are also not up to the required levels in LDCs. As a result, infrastructure in LDCs does not seem to play a significant role in attracting FDI. The country dummy variable which takes the value 1 for African LDCs and 0 for Asian LDCs is significantly negative in all the resource-seeking models except for model 3. This indicates that OFDI from India is lower in African LDCs in comparison to Asian LDCs. It is in line with the UNCTAD statistics which indicate that FDI flows in African economies declined by 31% in 2017 while for Asian economies, the flows reported an upward trend (UNCTAD, 2018a). Also, FDI flows in 2018 touched a record high in Asian LDCs (UNCTAD, 2019b). Although trade and investments by India in African LDCs has been rising over the years, however, it is majorly concentrated in oil and gas sector. Also, this may be because these investments are made predominantly by public sector oil and gas companies like Oil India Limited, Gujarat State Petroleum Corporation and ONGC Videsh. As a result, it may be noted that the role of Indian private sector companies in African LDCs is lagging behind (Chakrabarthy, 2017). We also created the interaction terms between country dummy and each of the resource variable, the results for which are indicated in model 2,3,4 and 5. Of all the interaction terms, only the interaction between country dummy and education of human resources is positively significant in the models 2 and 5. This indicates that as the human resources develop, the increase in OFDI by India will be more in African LDCs in comparison to Asian LDCs. Results for Market-Seeking ModelsModel 6 to model 11 report the marginal effects of market-seeking factors on OFDI from India in LDCs. Except for model 11, in all other market-seeking models, trade openness has a significant and positive relationship with OFDI. Thus, we have sufficient evidence to not reject our hypothesis H2 c. This indicates that as LDCs open their trade with the partners abroad, the FDI in LDCs also increases. The results are consistent with past researchers (Tintin, 2013; Aziz & Mishra, 2016; Asiedu, 2006; Campos & Kinoshita, 2003), who have established a positive relationship between trade openness and FDI in a country. As the country opens its trade, the integration between the economies increases, thereby helping the foreign investors in improving their understanding of the host country local market conditions. Amidst the implementation of Duty-Free Tariff Preference scheme by Government of India, the trade relations between India and LDCs has strengthened over the years. These strong relationships may help in pushing investments by Indian multinationals into LDCs. However, BIT between LDCs and India is not significant in attracting FDI from India in all the market-seeking models. As a result, our hypothesis H2 d stands rejected. Although, over the years LDCs are taking greater interest in signing treaties with partners abroad, however, it is important to understand that merely signing the BIT is not enough in enhancing the relationship between economies, it is imperative that these treaties must be in force well in time. Statistics by United Nations indicate that there is usually a time lag between the signing of BIT and when it actually comes into force (United Nations, 2020). This might be the reason that despite the active participation by LDCs in signing BITs, these treaties are not playing a significant role in attracting FDI from India. Market size also has a significant and positive relationship with OFDI in all the market-seeking models. Thus, we fail to reject our hypothesis H2 a. The results are in line with past researchers Rjoub et al. (2017), Milner and Pentecost (1996) and Nunnenkamp (2002), who have established positive relationship between market size of an economy and its ability to attract more FDI. The rising population size of the host economy provides foreign investors with the growing market for their products. This entices the investors to set up their production facilities in such economies. This is particularly significant for LDCs since they represent greater potential for market growth. Markets in developed nations are already saturated and are characterized with ageing population. Thus, the untapped opportunities in underdeveloped economies like LDCs makes them an attractive destination for investment. With respect to GNI per capita, results indicate that it is not significant in attracting investment to LDCs in all the market-seeking models. Although, the marginal effects for GNI per capita are positive in all the models, however, they are not significant. Hence, our hypothesis H2 b stands rejected. Amongst all the market-seeking models, country dummy is insignificant in four models (model 7,8,9 and 10) indicating that there is no significant difference between OFDI from India in African as well as Asian LDCs. In remaining two market seeking models, it is significantly negative, again indicating that OFDI by India in African LDCs is lower than in Asian LDCs. Model 7,8,9,10 and 11 include interaction of country dummy with each of the market-seeking variable. Of all the interaction terms, only the interaction between country dummy and market size, and country dummy and BIT is significant, but only in model 11. Interaction between country dummy and market size indicates that as the size of the market increases, OFDI by India is more in African LDCs in comparison to Asian LDCs. Also, the interaction between country dummy and BIT indicates that as the BITs between India and LDCs increases, the OFDI by India is higher in Asian LDCs in comparison to African LDCs. This may be owing to the fact that it is comparatively easy for India to strengthen its bilateral relations with its neighbouring countries due to similarity in their market dynamics to some extent.In conclusion, the results indicate that OFDI by India in LDCs is both resource-seeking as well market-seeking in nature. It is majorly due to the endowment of rich resources and untapped potential in LDCs, which makes them an attractive destination for investment by India. However, statistics in World Investment Reports indicate that in terms of FDI stock, India does not feature amongst the top ten investor economies in LDCs (UNCTAD, 2019b; UNCTAD, 2020). Although, Indian Government has been undertaking initiatives in order to boost its trade relations with African economies, however, still the trading volume between China and African countries is three times higher than that between India and Africa (Schwikowski, 2019). It thus calls for policy reforms and initiatives by Government of India in fostering its trade and investment relationships with LDCs in order to fully exploit the untapped potential and growing markets of least developed economies. Table 3: Random Effects Tobit Model Regression ResultsVariable(1)(2)(3)(4)(5)(6)(7)(8)(9)(10)(11)Human Resource Education0.4884(0.000)*0.4759(0.000)*0.5785(0.000)*0.4318(0.001)*0.3825(0.009)*Natural Resources1.0082(0.002)*1.0843(0.000)*1.3360(0.001)*0.9145(0.010)*0.8823(0.027)*Infrastructure-0.300(0.322)-0.3388(0.248)-0.2633(0.375)-0.6473(0.082)-0.7237(0.050)*Country Dummy (1= Africa, 0= Asia)-3.003(0.000)*-13.654(0.001)*-1.5001(0.223)-2.7641(0.001)*-15.382(0.008)*-0.7856(0.050)*-8.5918(0.142)-2.4040(0.633)0.2649(0.773)-0.6356(0.141)-21.987(0.008)*Country Dummy* Human Resource Education(Interaction Term)0.7626(0.011)*0.8722(0.018)*Country Dummy* Natural Resources(Interaction Term)-0.7701(0.130)0.3037(0.632)Country Dummy* Infrastructure(Interaction Term)0.8789(0.109)0.9617(0.082)Market Size0.5492(0.000)*0.4951(0.001)*0.5350(0.001)*0.6630(0.000)*0.5490(0.000)*0.3822(0.027)*GNI Per Capita0.4418(0.146)0.5023(0.087)0.3565(0.354)0.4320(0.137)0.3776(0.228)0.0357(0.915)Trade Openness2.2234(0.001)*2.0080(0.004)*2.2315(0.001)*3.3746(0.007)*2.4108(0.001)*2.5402(0.086)BIT (Yes=1, No=0)-0.1082(0.666)-0.0819(0.750)-0.0927(0.715)-0.0678(0.792)0.0454(0.887)0.7300(0.073)Country Dummy* Market Size(Interaction Term)0.3284(0.185)0.6403(0.016)*Country Dummy* GNI Per Capita(Interaction Term)0.1793(0.719)0.7904(0.070)Country Dummy* Trade Openness(Interaction Term)-1.5001(0.266)-0.6366(0.691)Country Dummy* BIT(Interaction Term)-0.4402(0.386)-1.0157(0.037)*Inflation-0.0289(0.249)-0.0319(0.191)-0.0292(0.240)-0.0144(0.597)-0.0167(0.516)0.0208(0.282)0.0229(0.232)0.0227(0.259)0.0198(0.300)0.0159(0.424)0.0276(0.133)Exchange Rate0.0316((0.781)-0.1187(0.336)-0.0882(0.519)0.0150(0.899)-0.1155(0.387)0.0219(0.851)-0.0319(0.7950.0320(0.788)-0.0160(0.893)0.0054(0.964)-0.0996(0.408)Wald Chi233.3941.2937.1934.6944.8028.8435.0328.6232.5528.5469.95Prob. > Chi20.00000.00000.00000.00000.00000.00020.00000.00040.00010.00040.0000Observations6565656565979797979797Log Likelihood-96.08-92.79-94.95-94.84-91.31-126.12-125.31-126.05-125.50-125.73-123.09Note: The table reports marginal effects of random effects Tobit model. The dependent variable is OFDI from India in LDCs. OFDI, human resource education, natural resource endowment, GNI per capita and market size are measured in logs. The results are reported at 5% level of significance. Conclusion and Policy ImplicationsThe current study explores the impact of various host country (LDCs) resource-seeking as well market-seeking factors that affect the outward foreign direct investment from India. Over the years, India has been undertaking several initiatives to boost its trade and investment with LDCs. For instance, the Government of India implemented the Duty-Free Tariff Preference (DFTP) scheme in 2008 to grant duty free market access to all LDCs. The government has also undertaken several strategic initiatives in order to strengthen its relationship with African countries such as “Focus Africa” programme, Asia-Africa Growth Corridor and India Africa Forum Summit. Notwithstanding these policy measures, India does not feature amongst the top ten investor economies in LDCs (UNCTAD, 2019b; UNCTAD, 2020). This makes it imperative to understand what causes OFDI flows from India into LDCs. For this purpose, the panel data of 13 LDCs from 2008-2018 has been tested. The LDCs in our data set belong to African and Asian region. Although certain attempts have been made to study the foreign direct investment in LDCs (Sauvant, 2015; Malgwi, Owhoso, Gleason, & Mathur, 2006), however, till date, to the best of our knowledge, there hasn’t been any attempt made to study OFDI from India in LDCs. To analyse the data, our study employs Tobit regression model since the dependent variable i.e. Outward Foreign Direct Investment (OFDI) is a censored variable. Our dependent variable takes a value zero when there is no OFDI while follows a continuous distribution for all the periods where OFDI is greater than zero. As a result, we observe censoring from left. The Tobit model efficiently accounts for the problem of left censoring. The results indicate that OFDI from India in LDCs is both resource-seeking as well market-seeking in nature. In our resource-seeking models, education of human resources and natural resource endowments exhibit significant and positive relationship with OFDI from India. It is majorly due to the endowment of rich natural resources and untapped potential in LDCs, which makes them an attractive destination for investment by India. Also, our results indicate that at present infrastructural developemnt in LDCs does not play a significant role in attracting FDI from India. However, it is evident that LDCs represent huge growth potential in their infrastructral facilities that might help them in luring foreign investors in the coming years. Realizing this growth potential, some LDCs have started focusing on their infrastructural projects which is expected to attract FDI in the years ahead (UNCTAD, 2019b). In our market seeking models, market size and trade openness exhibit significant and positive relationship with OFDI from India. The markets in developed economies are mostly saturated and are characterized with ageing population which makes it difficult for foreign investors to locate the untapped opportunities in such economies. As a result, economies around the globe have started shifting their attention to underdeveloped nations to seize the growing opportunities. Results also indicate that GNI, despite being one of the defining criteria of LDCs, does not play a significant role in attracting FDI from India. This implies that foreign investors are now looking for other important factors like quality of human resources, natural resources, trade openness and rising population while deciding to undertake OFDI. With respect to geographical distribution, results indicate that OFDI by India is lower in African LDCs in comparison to Asian LDCs. Firstly, this may be due the fact that foreign investment in oil and gas sector in Africa is dominated by Indian public sector enterprises. Secondly, until now, majority of the investment in African LDCs by Indian multinationals has been natural resource seeking, despite the fact that LDCs represent huge growth potential in their infrastructural facilities. This inevitably makes them resource-curse economies which crowds out their non-resource FDI. As a result, LDCs suffer from lower aggregate amount of FDI, particularly African LDCs. The results have policy implications that will help LDCs in accelerating the much needed foreign investments from India while helping Indian multinationals to benefit from the untapped potential in LDCs, at the same time. Although, there have been several policy reforms undertaken by Government of India in order to boost its inward FDI viz. establishing Special Economic Zones, Double Taxation Avoidance Agreement, opening up various sectors for FDI, etc., however, a well-developed policy framework for boosting outward FDI from India, particularly in underdeveloped economies is required. There is no such policy framework in place which is aimed at encouraging Indian multinationals to raise their investment in LDCs. Firstly, it calls for Indian Government to lay its thrust on investing in African LDCs. As discussed already, that the public sector enterprises in India dominates OFDI in oil and gas sector in Africa. This makes it imperative to provide incentives to Indian private sector enterprises in order to encourage their foreign investment in LDCs. Secondly, it is evident that LDCs represent humungous growth potential in their infrastructural facilities. Despite efforts by LDCs in building their infrastructural projects, FDI in LDCs is far from the desired levels (UNCTAD, 2019b). Hence, it is important for LDCs to focus more on building its infrastructure facilities to attract FDI from India on one hand, and Indian government to provide incentives to Indian multinationals to invest in infrastructural projects in LDCs. As discussed in section 4, to expedite their inward FDI, LDCs have been undertaking several policy measures and initiatives such as ease of doing business policies, offering various tax benefits to foreign investors, etc. However, there is still a room for certain policy reforms on the part of LDCs too. Firstly, in order to prevent the crowding out of FDI in its non-resource sectors, it is imperative that the focus shall be on developing other sectors in the economy like power, telecommunication, real estate, etc., in order to attract a higher aggregate level of FDI. 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However, despite the policy reforms undertaken by LDCs and support measures extended by various donors with respect to trade, aids and debt, no substantial progress could be witnessed in the economic situation of LDCs (UNCTAD, n.d.). 1991-2000 Paris Programme of Action (PPoA)Albeit the initiatives adopted during the first programme of action, the situation of LDCs in fact worsened during 1981-1990. The aim of the second programme of action was thus to reverse degradation of socio-economic situation in LDCs in order to reshape their growth and development. Consequently, the focal point of the second programme of action was on the development of human resources, reshaping the macroeconomic policy, addressing disasters and development of the productive sector. A greater support in the form of committed financial assistance from other developing and developed nations was also acquired during the second phase of the programme of action (UNCTAD, n.d.). 2001-2010 Brussels Programme of Action (BPoA)The aim of the Brussels Programme of Action, the third programme of action, was to promote the sustainable development in LDCs and considerably reducing the size of the population living under extreme poverty. The action plan for achieving the underlying goals was to promote global partnerships by integrating LDCs into global economy. The programme stated that in order to enable LDCs to integrate into world economy, it is imperative that the development process of LDCs shall be viewed cohesively by all international partners and agencies. Also, for effective development of LDCs, a greater alignment between the policies and strategies of LDCs and external international partners is required (UNOHRLLS, 2006). The aim was to help LDCs remove their supply-side constraints and thus enabling greater participation of LDCs in world trade (UNCTAD, n.d.). 2011-2020 Istanbul Programme of Action (IPoA)The objective of the most recent programme, the Istanbul Programme of Action was on strengthening the productive capacity of LDCs in order to achieve their inclusive and equitable economic growth. It was realized that LDCs are endowed with enormous natural and human resource potential which can contribute towards the growth and prosperity of world economy, as well as enhancing the development of LDCs at the same time. Thus, the objective of this programme was on undertaking a structural transformation in LDCs by enhancing their productive capacity. The aim was to help LDCs double their exports in world trade by 2020 by ensuring the effective implementation of duty free, quota free market access (UNOHRLLS, 2020a). ................
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