Abstract
The current study mainly attempts to find out whether macroeconomic indicators actually stimulate the inflow of FDI into India. The study also attempted to check whether there is any long run or short run relationship between the macroeconomic indicators and FDI inflows into the country using regression analysis, Cointegration test, Granger causality and Vector error correction model. The results show that the explanatory variables captured in the model well explained the variations in FDI Inflows. However, not all the explanatory variables considered in the model are statistically significant in explaining the behavior of FDI. Unrestricted Cointegration Trace statistic and Max-Eigen statistics supports the existence of cointegrating relationship among the variables. The study also shows that SENSEX and NIFTY do granger cause FDI in the long run while, FDI does not granger cause neither of the two. S Vector Error Correction Model supports the absence of short-run relationship among the macroeconomic indicators and FDI inflows in India.
Highlights
The Foreign Direct Investment (FDI) is emerging as one of the most vibrant sectors witnessing remarkable growth in the 21st century
Not all the explanatory variables considered in the model are statistically significant in explaining the behavior of FDI
The study shows that SENSEX and NIFTY do granger cause FDI in the long run while, FDI does not granger cause neither of the two
Summary
The Foreign Direct Investment (FDI) is emerging as one of the most vibrant sectors witnessing remarkable growth in the 21st century. In the current global scenario, conditions favor both the host country and the investor, as Foreign Direct Investment (FDI) is any long term investment by an entity who resides outside the host country. Creation of a competitive market for the domestic industry, paving the way for other industries to invest and above all enriching the profit making ability of the investor in another country apart from his own are some of the reasons that has seen exponential growth in FDI. This is especially true when it comes to India’s growth graph in FDI.
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