A Causality Linkage Analysis of Foreign Direct Investment, International Trade and Economic Growth in India

This study has investigated short run causality among foreign direct investment, international trade and economic growth of India during 2000 to 2018 adopting Toda – Yamamoto (1995) modified Granger causality approach under VAR model. The quarterly data of foreign direct investment, export and gross domestic product are used for this study. Initially, the Augmented Dickey-Fuller test and Phillip-Perron test has been used to evaluate stationarity. Along with it, Perron Innovational Outlier and Additive Outlier model used to find out structural break point. As the variables under study have mixed order of integration, Toda – Yamamoto (1995) modified Granger causality test has been used for determining direction of causal linkage. The empirical results are indicating uni-directional causality from foreign direct investment to export and from gross domestic product to export in India.