Causal Interaction between Foreign Portfolio Investment, Service Trade, Currency Value & Economic Growth: An Empirical Study of India

Ishwar Sharma, Sushant Yadav, Ruhee Mittal and Ajay Yadav

The Review of Finance and Banking, 2024, vol. 16, issue 2, 217-230

Abstract: Foreign Portfolio Investment (FPI) is important for emerging economies and has the potential to boost investment, liquidity, and stability. The relationship between FPI, service trade, and economic growth is complex, and understanding it is crucial for developing effective policies. Monthly data from January 2012 to December 2022 were examined using Auto Regressive Distributed Lag (ARDL) and Granger Causality Toda-Yamamoto to analyse the dynamic relationship between FPI, service trade, and economic growth in India. The findings suggest that the Indian service trade does not significantly impact foreign portfolio inflows in the short run and long run. Economic growth and Forex reserves have a positive impact on foreign portfolio investment, while the increase in the foreign exchange rate affects FPI negatively. The findings provide a new dimension of linkage between foreign portfolio investment and service export, which helps policymakers, industry and investors in decision-making.

Date: 2024
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