This article examines the foreign direct investment (FDI)-growth nexus by controlling for the level of financial development in a panel of six individual states of India from 2001 to 2018. By using pooled mean group estimation technique, the study finds that financial development encourages economic growth while FDI has a negative impact on output growth in the long run. However, a higher level of financial development allows states to benefit more from FDI, suggesting that financial development helps in enhancing the FDI impact on output growth.
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