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Macroeconomic Implications of Capital Inflows in India

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  • Masood, Tariq
  • Ahmad, Mohd. Izhar

Abstract

The study attempts to analyse the behaviour of some macroeconomic variables in response to total capital inflows in India using quarterly data for the period 1994Q1-2007Q4. Time trend of all variables except nominal effective exchange rate-both export and trade based and current account balance shows instability over the period of study. Current account balance is the only variable which is stationary in level form all other variables are stationary in first difference form. Cointegration test confirms the long run equilibrium relation between total capital inflows (TCI) and real effective exchange rate-both trade based and export based and between TCI and nominal effective exchange rate-export based. Granger causality test confirms the bidirectional causality between real effective exchange rate-export based and TCI and between foreign exchange reserve & TCI and unidirectional causality from TCI to real effective exchange rate-trade based.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 19299.

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Date of creation: 06 Mar 2009
Date of revision: 06 Oct 2009
Publication status: Published in International Review of Business Research Papers 6.5(2009): pp. 133-147
Handle: RePEc:pra:mprapa:19299

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Keywords: International Capital Inflows; Time Series Econometrics;

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  1. Granger, C. W. J., 1981. "Some properties of time series data and their use in econometric model specification," Journal of Econometrics, Elsevier, vol. 16(1), pages 121-130, May.
  2. Arvind Virmani, 2008. "Macro-economic Management of the Indian Economy: Capital Flows, Interest Rates and Inflation," Working Papers id:1353, eSocialSciences.
  3. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
  4. Renu Kohli, 2001. "Capital Flows and their Macroeconomic Effects in India," IMF Working Papers 01/192, International Monetary Fund.
  5. Schmidt, Peter & Phillips, C B Peter, 1992. "LM Tests for a Unit Root in the Presence of Deterministic Trends," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 257-87, August.
  6. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1994. "The Capital Inflows Problem: Concepts And Issues," Contemporary Economic Policy, Western Economic Association International, vol. 12(3), pages 54-66, 07.
  7. Renu Kohli, 2004. "Capital Flows and Domestic Financial Sector in India," International Finance 0405012, EconWPA.
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