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Indo-US Bilateral FDI and Current Account Balance: Developing Causal Relationship

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  • Badar Alam Iqbal
  • Mohd Nayyer Rahman
  • Abdul Turay

Abstract

Foreign Direct Investment and Current Account Balance are the two important macroeconomic variables considered in overall Balance of Payments (BOP). India and United States have progressed by investing in each other resources and has a significant share in their respective total FDI Inflows. FDI Inflows as per the BPM6 of IMF falls in the Capital Account of Balance of Payments (BOP). The balance of Current Account is related to Capital Account as Capital Account shows the mode of financing. It is through the Capital Account that the deficit of Current Account is financed. FDI is a long term source of financing for the country. The present study aims to develop a causal relationship between Indo-US FDI and Current Account Balance with the help of Granger Causality (Sims, 1980). The Toda and Yamamoto (1995) approach to Causality is followed in the study. The time period for the study is from 2001 to 2014. The study contains seven sections.

Suggested Citation

  • Badar Alam Iqbal & Mohd Nayyer Rahman & Abdul Turay, 2017. "Indo-US Bilateral FDI and Current Account Balance: Developing Causal Relationship," Academic Journal of Interdisciplinary Studies, Richtmann Publishing Ltd, vol. 6, March.
    • Handle: RePEc:bjz:ajisjr:1651
    DOI: 10.5901/ajis.2017.v6n1p129
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    References listed on IDEAS

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    1. Matthew Higgins & Thomas Klitgaard, 2007. "Financial globalization and the U.S. current account deficit," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 13(Dec).
    2. Nag, Biswajit & Mukherjee, Jaydeep, 2012. "The sustainability of trade deficits in the presence of endogenous structural breaks: Evidence from the Indian economy," Journal of Asian Economics, Elsevier, vol. 23(5), pages 519-526.
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