Determinants of India’s Outward Foreign Direct Investment to BRICS Countries: An Augmented Gravity Model Approach

Abstract

This paper examines the determinants of India's outward foreign direct investment (ODI) to its BRICS partners over 2007 to 2024. Using a country-year panel for Brazil, Russia, China, South Africa, Indonesia and Saudi Arabia, it relates India's ODI to each partner to economic mass, geographical distance, bilateral trade integration, macroeconomic conditions, institutional quality, digital and human development, economic complexity and global value chain participation. Because the data form a short panel of six recipients, the analysis uses pooled, random-effects, fixed-effects and Poisson pseudo-maximum-likelihood (PPML) estimators rather than the time-series cointegration and causality methods that dominate the India-BRICS trade literature (Kubendran, 2020; Singh, Chauhan, & Kumar, 2023; Singh, R. K., Chauhan, A. K., & Kumar, A. 2023a), and it draws inference from a wild cluster bootstrap that is appropriate when only six clusters are available (Cameron, Gelbach, & Miller, 2008). The cross-sectional gravity relationship is weak: conventional mass and distance terms explain between two and five per cent of how India distributes ODI across the six economies, a result that holds under both log-linear and PPML estimation and that fits the lumpy, deal-driven nature of direct investment. Within countries over time, ODI carries the expected signs on internet penetration, human development, economic complexity and, with a negative sign, capital-account openness, but once inference is corrected for the six-country cross-section none of these associations is statistically robust. The negative association with capital-account openness is the most consistent feature across specifications, yet it is identified from only three partners that changed their capital-account regime and it weakens when Brazil is removed or the regressors are lagged. Saudi Arabia, Russia and South Africa together receive about two-thirds of the cumulative USD 20.3 billion that India placed in the group, while China receives the least despite the largest economy and a shared land border. The results describe a strategic and resource-oriented pattern of Indian ODI that gravity fundamentals capture only in part, and the paper's contribution is a transparent, correctly-benchmarked account of that pattern rather than a set of confirmed structural determinants.