Role of Outward Foreign Direct Investment in Economic Growth of India: Evidence from Non-linear ARDL Approach

Abstract

The study investigates the relationship between outward foreign direct investment (OFDI) and economic growth of India using time series data covering the period of 1990–2019. It develops three models, including variables such as OFDI, economic growth, inward foreign direct investment, exports, and gross fixed capital formation. It applies non-linear ARDL approach and uses GDP per capita as proxy of economic growth. Broadly, it finds a positive long-run and short-run bi-variate relationship between OFDI and economic growth of India. But with the introduction of domestic fixed capital formation variable, the relationship turns negative. The study recommends the policymakers to focus on country’s gross fixed capital formation and invite investments from abroad, rather than directing funds to foreign countries.