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Economic reforms, capital inflows and macro economic impact in India

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  • Indrani Chakraborty

    (Centre for Development Studies)

Abstract

The study attempts to explain the effects of inflows of private foreign capital on some major macroeconomic variables in India using quarterly data for the period 1993-99.The analyses of trends in private foreign capital inflows and some other variables indicate instability. Whereas net inflows of private foreign capital (FINV),foreign currency assets,wholesale price index,money supply,real and nominal effective exchange rates and exports follow an I(1)process,current account deficit is the only series that follows I(0).Cointegration test confirms the presence of long-run equilibrium relationships between a few pairs of such cointegration except in two cases:cointegration exists between foreign currency assets and money supply and between nominal effective exchange rate and exports,even after controlling for FINV. The Granger Causality Test shows unidirectional causality from FINV to nominal effective exchange rates-both trade-based and export-based-, which raises concern about the RBI strategy in the foreign exchange market. Finally, instability in the trend of foreign currency assets could be partially explained by the instability in FINV with some lagged effect.

Suggested Citation

  • Indrani Chakraborty, 2001. "Economic reforms, capital inflows and macro economic impact in India," Centre for Development Studies, Trivendrum Working Papers 311, Centre for Development Studies, Trivendrum, India.
    • Handle: RePEc:ind:cdswpp:311
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    References listed on IDEAS

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    1. Abul M. M. Masih & Rumi Masih, 1994. "Temporal Causality Between Money and Prices in LDCs and the Error-Correction Approach: New Evidence from India," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 29(1), pages 33-35, January.
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    5. Corbo, Vittorio & Hernandez, Leonardo, 1996. "Macroeconomic Adjustment to Capital Inflows: Lessons from Recent Latin American and East Asian Experience," The World Bank Research Observer, World Bank, vol. 11(1), pages 61-85, February.
    6. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    7. Ms. Carmen Reinhart & Mr. Mohsin S. Khan, 1995. "Capital Flows in the APEC Region," IMF Occasional Papers 1995/015, International Monetary Fund.
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    Cited by:

    1. Dr. Md. Izhar Ahmad & Tariq Masood, 2015. "Macroeconomic Implications of Capital Inflows in India," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(4), pages 53-71.
    2. Narayan Sethi, 2012. "Inflows and their Macroeconomic Impact in India a VAR Analysis," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 15(45), pages 93-142, December.
    3. Masood, Tariq & Ahmad, Mohd. Izhar, 2009. "Macroeconomic Implications of Capital Inflows in India," MPRA Paper 19299, University Library of Munich, Germany, revised 06 Oct 2009.

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    More about this item

    Keywords

    Private foreign capital; economic reforms; instability; India;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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