Abstract
With the ever-growing importance of services sector in India’s economy, this paper seeks to identify the determinants of FDI in the services sector. The study uses ordinary least squares regression analysis and examines the impact of GDP, GDP per capita, trade openness, FDI openness, and labour cost on FDI inflows. We also use another specification to include the lagged dependent variable as an explanatory variable. Using annual data for the period 1991 to 2010, we find that FDI inflows in the services sector in India are significantly determined by national income, GDP per capita, trade openness, FDI openness and skilled labour availability. This confirms the view that FDI in the services sector is efficiency-seeking and greater availability of skilled labour in India leads to greater inflows of FDI in services sector.
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