Cointegration and Causality Study Among Inward FDI, Economic Growth and Exports: An Indian Perspective

Jekka Chandrasekaran Sharmiladevi
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Jekka Chandrasekaran Sharmiladevi: Symbiosis Centre for Management Studies, Symbiosis International University, Pune, India

International Journal of Asian Business and Information Management (IJABIM), 2020, vol. 11, issue 1, 63-77

Abstract: One significant feature of liberalisation for India has been a greater openness to foreign direct investment (FDI) as a means of acquiring technologies, skills and access to international markets, and of entering dynamic trade and production. The study analyses the empirical relationship between inward FDI, economic growth and exports of India from 1970-71 to 2013-2014. The objective of this article is to investigate the relationship between FDI, economic growth and exports empirically. The error correction coefficient value indicates a 15.02% movement back towards equilibrium following a shock to the model, one time period later. OLS indicate significant long-term causality relationship among the variables with high R2 value to the tune of 0.758660. The Wald Test establishes short-run causality from economic growth to inward FDI, and from exports to inward FDI. A one-way causality relationship is running from exports to inward FDI. Economic growth causes inward FDI, but, inward FDI is not causing economic growth. Exports cause inward FDI, and inward FDI does not cause exports.

Date: 2020
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