Potential for foreign direct investment and its role in foreign direct inflows
Pooja Sharma (),
Sunita Gupta () and
Devika Kapoor ()
Additional contact information
Pooja Sharma: University of Delhi
Sunita Gupta: University of Delhi
Devika Kapoor: Imperial College
International Economics and Economic Policy, 2024, vol. 21, issue 4, No 11, 985-1000
Abstract:
Abstract Foreign direct investment (FDI) plays a critical role in economic growth and development. It is imperative to examine factors such as socioeconomic, political, and environmental factors that are responsible for determining the potential to attract foreign investment. The paper attempts to evaluate the attractiveness of FDI in India in other words, the potential of India to attract foreign direct investment. Secondly, the study investigates the role of FDI potential in the real FDI inflow in the country. The paper constructs a comprehensive index for the attractiveness of foreign direct investment for India, which reflects the preparedness or potential of the country to provide a conducive environment for foreign investments. The study adopts principal component analysis (PCA) to formulate an index that reflects socioeconomic, political, and environmental aspects of FDI. Appropriate indicators are used to reflect all the dimensions, such as social, political, environmental, economic, infrastructure, and human capital. By regressing the FDI potential index on the interest rate, final consumption, public–private partnership, and potential for FDI on actual FDI inflow, the role of FDI potential is highlighted. It is revealed that FDI potential and FDI inflows are significantly positively correlated as well as significantly positively determine the FDI inflows as revealed by the regression results. Therefore, infrastructure, socioeconomic factors, and human capital also ensure political stability and governance are favorable in promoting more FDI inflow. In addition, the policies favoring public–private partnership and supporting all dimensions of FDI potential index must be promoted.
Keywords: Foreign direct investment; FDI potential index; PCA method; Socioeconomic; Political; Infrastructure; Human capital; Environmental factors (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:
Downloads: (external link)
http://link.springer.com/10.1007/s10368-024-00624-w Abstract (text/html)
Access to full text is restricted to subscribers.
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:kap:iecepo:v:21:y:2024:i:4:d:10.1007_s10368-024-00624-w
Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/10368/PS2
DOI: 10.1007/s10368-024-00624-w
Access Statistics for this article
International Economics and Economic Policy is currently edited by Paul J.J. Welfens, Holger C. Wolf, Christian Pierdzioch and Christian Richter
More articles in International Economics and Economic Policy from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().