An Extremely Endogenous Relationship of Technology Gap With Foreign Direct Investment and Employment in India

Abstract

This research article examines causal relationships between three most important factors of economic growth, i.e., foreign direct investment (FDI), technology gap, and employment in India. First, the study explores the relationship of FDI with technology gap. Consequently, the study strives to understand the effect of technology transfer through FDI on the level of employment and self-employment/entrepreneurship while considering the role of trade liberalization in the FDI–technology–employment relationship. The modified Wald test of Toda and Yamamoto (1995) has been applied for the study. The major finding of the study is that the state of technology in India is acting as a driving force behind FDI, which, in turn, is pushing the agenda of trade liberalization. Therefore, FDI and trade openness are becoming the key influencers for employment generation in industries and also inducing self-employment and entrepreneurship across various sectors of the economy. A direct two-way relationship has also been found between technology and employment (employment in industrial sector and the self-employed people/entrepreneurs) in India. This implies that technology is a motivating factor behind the present scenario of trade markets in India. This article provides good policy insights for developing strategies toward technology transfer, investments, and employment creation.