A Causal Linkage between FDI Inflows with Select Macroeconomic Variables in India – An Econometric Analysis

Gholam Syedain Khan, Papia Mitra
2014 IOSR Journal of Economics and Finance  
The paper endeavour to explore the short run and long run causal relationship between select macroeconomic variables (GDP, Exchange Rate & Inflation Rate) and FDI inflows in Indian context by applying Cointegration test followed by Vector autoregression (restricted/unrestricted) model and Grangercausality test. Further, by employing simple regression model, it tries to calculate the exponential growth rate of FDI inflows in India. Eventually, Chow test has been employed to detect the presence
more » ... tect the presence of significant structural break in the data series of FDI inflows. However, the results show that there prevails long run equilibrium among the concerned variables. The Granger-causality test results conclude that exchange rate and GDP statistically significantly influence FDI, whereas, inflation rate is insignificant variable to predict FDI inflows. Further, the growth analysis result claims that the total FDI inflows grow exponentially at a rate of 23% per annum. However, as stated by the results of Chow test, 1991-92
doi:10.9790/5933-055124133 fatcat:c4rujsqjmffhzoegulagqf3kfu