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Macrodeterminants of FDI in India: Cointegration and Causality

In: Foreign Capital and Economic Growth in India

Author

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  • Mahendra Pal

    (University of Delhi)

Abstract

This chapter attempts to test empirically the potential determinants of FDI in India with the help of cointegration technique developed by Johansen and Juselius (1990) for the period 1971–2013. We test empirically two models. Model 2.1 includes seven variables such as FDI, trade openness, financial deepening, GDP, growth rate, PCY and exchange rate. After confirming the order of integration, we find two cointegrating equations and rejects null hypothesis of no cointegration and shows long-run relationship among variables. Model 2.2 includes only four variables such as FI, GDP growth rate, financial deepening and trade openness. We find two cointegrating equations. In both the models, pairwise Granger causality is detected in the number of variables as hypothesized in the two models. GDP, growth rate, financial deepening and trade openness have been explored as potential determinants to attract more FDI and foreign investment in Indian emerging economy.

Suggested Citation

  • Mahendra Pal, 2023. "Macrodeterminants of FDI in India: Cointegration and Causality," Springer Books, in: Foreign Capital and Economic Growth in India, chapter 0, pages 23-60, Springer.
    • Handle: RePEc:spr:sprchp:978-981-99-2299-4_2
    DOI: 10.1007/978-981-99-2299-4_2
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