GDP and Outward Foreign Direct Investment from India: Co-Integration and Causality Test

Abstract

India’s outward foreign direct investment has experienced a Dynamic change over last decade after the liberalisation and globalisation of Indian economy that further achieves economic expansion and development in recent years. Approximately seven percent growth rate is witness by India from 1993-2011.This period also witnessed upward trend of outbound investment from India. UNCTAD (2015) has also nailed India as one of the leading outward investing economies. But a very few works have been done for exploring the long run relationship between outward FDI and GDP in context of the emerging economies like India. With this backdrop, the present study empirically investigates the long run and short run co –integrating relationship between India’s GDP and OFDI. For empirical analysis various econometric tools like test of stationarity, Engle granger co-integration ( as we have consider only two macro variables) and ECM model is used to test the causal association between the selected variables. It is found that there is long run causal relationship among OFDI and India’s Growth rate. The results found that no short term causal association among India’s OFDI and GDP by reflecting the fact that there are other factors which have influence on OFDI flows.