Institute for Social and Economic Change

Established in 1972 by Professor V K R V Rao, ISEC is an All-India Institute for Interdisciplinary Research and Training in the Social Sciences

Economic Growth in India: Does Foreign Direct Investment Inflow Matter? – isec

Economic Growth in India: Does Foreign Direct Investment Inflow Matter?

Abstract

This paper examines the role of Foreign Direct Investment (FDI) in promoting economic growth via export promotion by using quarterly data relating to the period 1991-I to 2000-IV. The study uses the Johansen co-Integration test, and the results demonstrate that there is a long-run relationship between Gross Domestic Product (GDP), FDI, and Export (EX) and Industrial Production (IIP), FDI, and EX. However, the elasticity coefficients between FDI and GDP and FDI and IIP turned out to be negative but the elasticity coefficients between EX and GDP and EX and IIP are positive. It implies that FDI does not matter in the growth of the economy, but EX contributes to the growth in India. Therefore, in order to achieve higher economic growth, it is advisable to open up the export-oriented sectors in India.

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