The impact of outbound FDI on domestic investment

When a firm becomes a multinational, what does this do to its pace of growth of domestic assets? In contrast to the evidence for US multinational companies, where foreign and domestic investment are seen to be complements, we find evidence that for Indian MNCs, significant levels of outbound FDI have a negative impact on the growth in domestic investment. We conjecture that this is related to special features of capital controls against foreign borrowing, and to a difficult institutional environment faced in doing domestic investment. ∗This paper was written under the aegis of the NIPFP-DEA Research Program. We are grateful to CMIE for help with the firm-level database used in this paper. We thank Aditi Dimri for research assistance.