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Macroeconomic determinants of foreign direct investment: evidence from India

Author

Listed:
  • Pami Dua
  • Reetika Garg

    (University of Delhi, India)

Abstract

This study examines the macroeconomic factors underlying FDI flows to India using cointegrating VAR with I(1) exogenous variables. The results indicate that conventional determinants such as a depreciating exchange rate, higher domestic returns, higher domestic output and better infrastructure are conducive to FDI flows to India. The results also indicate that macroeconomic instability has adverse effects while credit worthiness is conducive to FDI flows. A negative relation between trade openness and FDI is observed suggesting that FDI flows to India may be tariff jumping in nature. Empirical estimates also indicate that an increase in global FDI flows to other emerging economies reduces FDI flows to India indicating that India competes with other emerging economies in receiving FDI. Further, the results show that higher foreign output is conducive to FDI flows indicating procyclicality of FDI with economic performance of foreign countries.

Suggested Citation

  • Pami Dua & Reetika Garg, 2015. "Macroeconomic determinants of foreign direct investment: evidence from India," Journal of Developing Areas, Tennessee State University, College of Business, vol. 49(1), pages 133-155, January-M.
    • Handle: RePEc:jda:journl:vol.49:year:2015:issue1:pp:133-155
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    Citations

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    Cited by:

    1. Mahmud A. Mansaray, 2017. "Macroeconomic Determinants of Foreign Direct Investment Inflows and Impulse Response Function," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 7(10), pages 187-219, October.
    2. Satya Prasad Padhi, 2024. "Indian Experience of Managing Impossible Trinity, Growth and Possible Tradeoff Between FDI and FIIs: Nature of Capital Inflows Matter," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 16(1), pages 44-63, January.
    3. Virender Kumar & Naveen Kumar & Puneet Kumar Arora & Apoorva Gupta, 2024. "Does domestic monetary policy affect foreign direct investment to India?," Economics Bulletin, AccessEcon, vol. 44(1), pages 173-181.
    4. Abdulrahman A. Albahouth & Muhammad Tahir, 2024. "The Relationship between Trade Openness and FDI Inflows: Evidence-Based Insights from ASEAN Region," Economies, MDPI, vol. 12(8), pages 1-18, August.

    More about this item

    Keywords

    Foreign direct investment; VECM; India;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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