Examining the nonlinear impact of selected macroeconomic determinants on FDI inflows in India

Abstract

PurposeOver the years, India has witnessed irregular FDI inflows. Therefore, this study aims to explore the asymmetric impact of per capita income, final consumption expenditure, globalization index and exchange rate on FDI inflows in India.Design/methodology/approachUsing the nonlinear autoregressive distributed lag bounds framework and unknown structural break, the study investigates the impacts of selected macroeconomic variables in driving FDI inflows in India during the study period (1979-2016).FindingsThe outcomes of the study confirm the asymmetric relationship between FDI inflows and its determinants during the study period. The results have confirmed that the improvement in per capita income, private consumption expenditure, globalization index and currency value appreciation play a crucial role in increasing FDI inflows in India. In contrast, the downside movements in the volume of consumption expenditure, globalization index and depreciation of the currency value in relation to the trade partners result in reducing the volume of FDI inflows in the long run.Originality/valueFor determining FDI inflows, previous studies have considered the overall impact of its potential determinants, which may provide partial information about the phenomenon. The adopted nonlinear approach highlights that both the types of fluctuations (i.e. upside and downside) in the independent variables may affect FDI inflows differently and substantially. The nonlinear association between FDI and selected determinants may be vital in formulating a long-term policy.