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Abstract

Since the last two decades, China and India have attracted the attention of multinational enterprises around the world. Apart from accounting for almost a third of the world population, both economies’ share in the world economy has grown substantially. Taken together they are expected to contribute around 1.8 percent of the 4.5 percent global growth expected in 2011. Currently, China hails as the second largest economy in the world replacing Japan (in Purchasing Power Parity (PPP) terms), while India is the fourth largest economy, replacing Germany (IMF, 2011). Furthermore, based on the current economic growth trajectory (in PPP terms), China is expected to be the world largest economy by 2016 and India to be world third largest economy by 2020. However, some of these reports also argue that China’s potential FDI has showing a declining trend lately and India’s domestic policies have been the major ‘behind the border’ constraints to attract FDI consistently. It is in this context, this paper using a panel data from 2000 to 2009 over top 20 export destinations for China and India examined the question of whether China and India are able to achieve their potential FDI and whether this potential has been declining or increasing over time.

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