A study on foreign direct investment, economic stabilityand economic development-An empirical analysis

Abstract

International Economic Integration plays an integrative role in Economic Development of any country. Foreign Direct Investment (FDI) is one and only major instrument of attracting International Economic Integration in an economy. It serves as a liaison between investment and saving. Many developing countries like India are facing the deficit of savings. This problem can be solved with the help of Foreign Direct Investment. Foreign investment helps in reducing the defect of BOP. The flow of foreign investment is a profit making industry like insurance, real estate and business services and serving as a catalyst for the growth of economy in India. With the journey of borderless economy and open competition on 24th July, 1991, the Indian production economy witnessed an unprecedented threats and challenges in the form of inward and outward capital infusion. Capital infusion have been realised with the influx of inward foreign direct investment. The FDI can affect directly the growth process and economic output of a nation. The most popular measure of economic output is GDP (Gross Domestic Product). The objective of this paper is to investigate and made an in-depth study the interactions and economic agglomeration between the economic growth, Capital infusion and economic stability of Indian economy in the period following the first generation financial sector reforms. Furthermore, the research study tries to estimates the relative roles of FDI, Exports and social well-being in the economic growth intermediation process. The study tries to tests for characteristics of movement of FDI and whether they have any assignable cause or bears any random shocks. The investigation also observes a relative responsibility and interactive long run relationship between a GDP, FDI, Economic stability and cultural agglomeration. The results indicate the importance of FDI on general, social, and economic growth and the relative roles of the internal economic environment in augmenting the growth process during this study period of 1980--2013. After analyzing all the facts it may be concluded that maximum global foreign investment's flows were went to developed countries rather than developing and under developing countries. Foreign investment flows are supplementing the scare domestic investments in developing countries particularly in India. Further this paper recommends that we should welcome the inflow of foreign investment because it enable us to achieve our cherished goal like making favourable the balance of payment, rapid economic development, removal of poverty, and internal personal disparity in developmental process and also it is very much convenient and favourable for Indian economy. During pre liberalization period of 1980–91 Inward FDI increased at CAGR of 10.39% while during first generation post liberalization period 1991–2000 it has grown 53.57% and second phase of post-liberalization period 2001–13 recorded a CAGR of 18.01%. This indicates that liberalization has had a positive impact on FDI inflows in India. Since 1991 FDI inflows in India has increased approximately by more than 191.85 times.