A Study of Nexus Between Foreign Direct Investment and Economic Growth-Econometric Analysis for India

The main objective of this study is to find out causal relationship between FDI and GDP, presence or absence of long run equilibrium relationship between FDI and GDP during post reform period. The required data of FDI and GDP is collected from RBI database for 64 quarters commencing from Q2 of 1998 to Q2 of 2014 and GDP is used as proxy for economic growth. The result of Johansen cointegration test indicates long run equilibrium relationship between FDI and GDP. Granger causality test indicates unidirectional relationship running from GDP to FDI, so it is concluded that GDP Granger causes to FDI and inflow of FDI in India is economic growth induced. The findings suggest government must devise strategies that will lead to economic growth as inflow of FDI follows to economic growth.