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Impact of FDI on GDP per capita in India using Granger causality

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  • Nadar, Anand

Abstract

This research investigates the causality between FDI and GDP per capital in the context of India. Using WDI data from 1970-2019, We applied two types of Granger causality tests: long-run causality and shortrun causality tests. For the long-run causality, we applied pairwise Granger causality test, and for shortrun, we performed the Wald test approach under VECM (Vector Error Correction Model). The long-run causality test indicates that there is a unidirectional causality running from FDI to GDP per capita, implying that FDI causes the GDP per capita to change and not vice-versa. The short-run causality test indicates that there is no causality between FDI and GDP per capita, suggesting that, in the short-run, FDI and GDP per capita does not cause each other. The central policy conclusion from this study is that although FDI does not cause GDP per capita in the short-run, it causes in the long-run. Therefore, according to our study, India should attract FDI to sustain a long-run growth of GDP per capita.

Suggested Citation

  • Nadar, Anand, 2021. "Impact of FDI on GDP per capita in India using Granger causality," MPRA Paper 106826, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:106826
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    References listed on IDEAS

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    More about this item

    Keywords

    GDP per capita; Granger causality; FDI; India; VECM;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General
    • F1 - International Economics - - Trade
    • F2 - International Economics - - International Factor Movements and International Business

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