136 l REGIONAL INVESTMENT PIONEERS IN SOUTH ASIA
countering the stereotype of the similarity of endowments among South Asian countries. The wide variety of investments pursued with varying start-up costs shows how OFDI participation is quite inclusive. Some important policy implications result from this analysis. First, by incorporating an outward investment lens in the context of a firm choosing from among alternative engagement modes, the analysis brings attention to the stark distortions resulting from the OFDI policies of most countries in the region. Most OFDI arrangements are restrictive, discretionary, and lack transparency, with the exception of India and to a lesser extent Sri Lanka. Second, the diverse motivations of regional pioneers highlight new benefits of OFDI specific to emerging market multinationals, heightening the need for policy action on OFDI, even for small economies and those with balance of payments concerns. Third, region-specific IFDI and OFDI policies remain in place, distorting investment flows in the region. The chapter also highlights the important role of investment hubs for the region. Estimates of ultimate investors suggest that intraregional investment is only marginally higher compared with unadjusted figures, but roundtripping is likely a larger issue. A study of South Asian firms, particularly in Dubai and Singapore, will likely produce a refined set of constraints that South Asian regulatory arrangements are imposing on actual and potential outward investors. Dubai and Singapore are not only global commercial port hubs but also demonstrate a strong presence of the diaspora and expatriate populations of many nations of South Asia. The next chapter identifies the determinants of investment entry and the characteristics of firms and investors that succeed and the constraints they face. The econometric estimation relies on the framework for international engagement developed in chapter 2. Chapter 4 first establishes the low levels of, and high variance in, knowledge connectivity, networks, and trust across 56 bilateral pairs of countries and proceeds to estimate the importance of knowledge connectivity, among other factors, for South Asian investors.
Annex 3A: Investment Hubs: The India-Mauritius Connection and How Singapore Fits In Mauritius plays a role that is much larger than expected in India’s foreign investment landscape. Data on inward foreign direct investment (FDI) stocks show Mauritius as the largest source of FDI to India, with US$87 billion at the end of 2017. Similarly, for outward FDI from India, Mauritius shows up prominently (a close third place destination, after Singapore and the Netherlands, as measured by FDI stocks). How could this country, which is 200 times smaller than India in gross domestic product (GDP) (but five times richer in GDP per capita), become India’s largest source of capital? What is driving this phenomenon? The foundation for this outcome is the Double Taxation Avoidance Agreement (DTAA), which India signed with Mauritius in 1982, when
