India's FDI Restrictions on Bordering Economies: Implications for China's Greenfield FDI to Emerging Markets

Fearing opportunistic takeovers during the economic upheaval caused by the Covid-19 pandemic, India put forth FDI restrictions resulting in the suspension of automatic route FDI from its border-sharing neighbours. Applying difference-in-difference methodology to bilateral greenfield project investment data from the Orbis BVD database, this study finds robust evidence that the 2020 India FDI restrictions created a dent in China's greenfield investments in India, both in terms of intensive and extensive margins. Furthermore, the FDI restrictions adversely affected greenfield project investments in specific industries such as manufacturing of metals, electrical equipment \& motor vehicles, and professional \& technical services. Lastly, the 2020 India FDI restrictions resulted in international spillovers, with China reallocating its outward greenfield FDI intended for India to other emerging market economies in ASEAN and Latin America.