Exploration of Relationship between FDI and GDP: A Comparison between India and Its Neighbouring Countries

Abstract

Foreign direct investment (FDI) inflows have been a trigger for accelerating economic growth in a number of countries. The pattern of FDI flows into India and its neighbourhood has been varied and so has been its impact on the economic growth in each of the countries. Although a lot of research has been carried out to establish causality between FDI and economic growth, the results are sometimes varied and conflicting. This study attempted to study the pattern of FDI into the Indian subcontinent and India’s neighbours, such as Pakistan, Nepal, Bangladesh and Sri Lanka, and explore the causality between FDI and gross domestic product (GDP). The results showed that the different economic policies of the respective countries had a role to play in explaining the difference in the quantum of the flow and there is an association between FDI and GDP, and in all the cases, FDI is instrumental in enhancing the economic growth of the countries included in the study.

Keywords

Granger causality ordinary least squares stationarity panel data analysis unit root test

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