Abstract
In this study, an attempt has been made to analyze the effects flow of foreign direct investment (FDI) arising from the implementation of liberalization polices (economic reform) on the gross domestic production (GDP) growth in Indian economy using a Cobb–Douglas production function and ARDL method during the period 1990-2008. The empirical results show that in the long run there exists a long-run relationship among the growth of gross domestic production and its major determinants of the labour force, the real capital and the real foreign direct investment. Finding indicates that foreign direct investment has positive effect but small significant on Gross Domestic Production, while the labour force and capital have had the most effect on gross domestic production.
Highlights
Inflow of capital from abroad in the form of private investment is important for the growth of developing the economy; especially at the initial stage of its economic development
The Auto-Regressive Distributed Lag Method (ARDL) ‘‘Bounds test’’ approach is based on the ordinary least square (OLS) estimation of a conditional unrestricted error correction model (UECM) for cointegration analysis developed by Pesaran et al (2001)
This study tests the presence of co-integrating relationship between gross domestic production (GDP) and foreign direct investment (FDI) using the Pesaran et al (2001) Auto-Regressive Distributed Lag Method (ARDL) .The procedures of the ARDL Bounds test approach include three steps
Summary
Inflow of capital from abroad in the form of private investment is important for the growth of developing the economy; especially at the initial stage of its economic development. Foreign investment has beneficial effects in terms of encouragement to the development of technology, managerial expertise, exports and higher growth. The Indian economy is on a robust growth trajectory and boasts of a stable 8 plus annual growth rate, rising foreign exchange reserves and booming capital markets among others. There is ample reason for India's viability as a destination for foreign investment. In addition to the above-mentioned macroeconomic indicators, higher disposable incomes, emerging middle class, low cost competitive workforce, investment friendly policies and progressive reform process all contribute towards India being an appropriate choice for investors
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