Evaluating Business Investment Decisions: Destination Management and the Impact of Outward FDI on Indian Exports

Abstract

Indian outward foreign direct investment (OFDI) has experienced significant growth, reflecting its critical role in driving India's economic expansion as an emerging economy. This study examines the selection criteria for Indian OFDI destinations by considering national distance across five dimensions: geographical, cultural, institutional, economic, and informational. Utilizing data from 2011 to 2023, the analysis employs EViews 12.0 and compares OFDI flows to the top 30 countries during this period. The OFDI size determination model highlights that while geographical, cultural, economic, and informational distances do not significantly influence destination choices, institutional distance emerges as a key determinant, emphasizing the importance of institutional factors. The study also investigates the impact of OFDI on Indian exports, revealing a long-run relationship. The findings suggest that Indian OFDI may either enhance exports by generating demand for intermediary products or substitute traditional exports through cost-effective and efficient entry modes like FDI. These insights provide valuable implications for policymakers and businesses aiming to optimize India’s global investment and trade strategies.