Foreign direct investment and economic growth: empirical evidence from India

Abstract

Foreign direct investment (FDI) inflows are considered to be one of the key factors in determining economic growth. As a fast developing economy, India has attracted lot of FDI in the recent past. The country which enjoys a higher economic growth is in a great position to attract larger FDI as it has the ability to generate higher return on the foreign investments. The study discusses the relationship between FDI flows into the country and economic growth during the period January 2000 to December 2014 using the quarterly data. The purpose of the study is to find the interrelationship between FDI and gross domestic product (GDP) in India. The study uses correlation, Granger causality test, Johansen cointegration test and vector autoregression (VAR) for studying the interrelationship between the variables. This study explores a positive association between the FDI inflows and GDP in the Indian economy. The study explores the unidirectional relationship flowing from FDI to GDP.