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Introduction
India has been very successful in attracting a large amount of foreign direct investment (FDI) in recent years. FDI into India has grown rapidly since the liberalization of the policy regime in the early 1990s. The World Investment Report ([43] WIR (2006) has noted that India ranked second as the most attractive investment location in the world, after China. The recent growth of Indian outward investment, which involves domestic enterprises participating in international capital markets and investing overseas directly, represents a dynamic aspect of India's growing economic integration with the world.
The fact that the investment relationship is not a one way relationship but that India has increased its outward foreign direct investment (OFDI) substantially over the last decade has been neglected in the literature so far. Data from the United Nations for Conference on Trade and Development (UNCTAD) show that Indian OFDI relative to its inward foreign direct investment (IFDI) has increased substantially since 1991. This development of Indian OFDI in relation to its IFDI from 1991 to 2006 is shown in Figure 1 [Figure omitted. See Article Image.]. As the figure shows, IFDI[1] was greater compared to OFDI over this period while the ratio of OFDI/IFDI flows has steadily increased reaching 0.57 in 2006. The ratio of FDI stocks has not fluctuated greatly, but there is evidence of an increasing trend in Figure 1 [Figure omitted. See Article Image.].
The phenomenon of increasing Indian OFDI is the focus of this paper. This study is based on the investment development path (IDP) hypothesis ([9] Dunning, 1981; [11] Dunning and Narula, 1996). The IDP model has provided a longstanding explanation for OFDI. The basic argument of this particular theoretical model is that, with increasing economic development, a country's net outward investment position (NOIP) defined as the difference between outward and inward investments, changes and this relation can be expressed by means of a quadratic function ([9] Dunning, 1981). This raises the question as to whether Indian OFDI or NOIP can be predicted by gross domestic product (GDP) per capita (PGDP). If it can, this raises the further question as to whether the relation satisfies the quadratic specification and at which stage of the IDP India resides. Given the fact that there is little research...