Seminar: FDI and BusinessInternationalization of the Unorganized Sector:Evidence from Indian Manufacturing
Speaker: Meghna Dutta
Abstract: Available evidence, though limited to the organized sector only, suggests that FDI flowing in with MNE activities or direct FIIs generate technological and market access spillovers for firms outside the core groupin destination countries. We investigate the organizational link betweenformal and informal sectors in India and argue that the spread ofinternationalization is more when production outsourcing prevails betweensuch units. Higher wage in the organized sector is a factor that breaksstandard institutional barriers leading to outsourcing of production toinformal units. The evidence is puzzling to the extent that foreign capitaland better know-how as drivers of international business to developingcountries usually relax the credit constraint facing formal sector units atthe destination and cause expansion of formal units. Using a measure oftechnology and a panel data for a large number of industrial units inIndia, we show that FDI transmitted through technology spillover leads tosignificant increase in the gross value added for several industrieslocated in the informal sector. The paper points out that productionre-organization associated with international capital movements shouldprovide additional insights for standard measures of internationalizationof production and services.