Foreign direct investment, trade openness and globalization in India: Econometric analysis

Abstract

Globalization is considered an engine for improved economic growth. This has been possible by the integration of the global market through the advancement in technology, completion and investment. This study examines the relationship between foreign direct investment (FDI) inflows, trade openness and globalization using univariate and multivariate linear regression analysis. Data has been collected from Reserve Bank, Word Bank, KOF globalization index for the period 1990–2015. Causality among the variables is checked by using the Granger causality test. Bi-directional causality has been found between trade openness and globalization, between FDI inflows and globalization. But only unidirectional causality has been found between trade openness and FDI inflows. Market capitalization has no causality with any of the variable used in this study. A strong positive and statistically significant association has been found between globalization, trade openness and FDI inflows. Thus policies can be designed to increase the foreign direct investment inflows to boost the economic growth of the country.