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FDI, services trade and economic growth in India: empirical evidence on causal links

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  • Ranjan Dash
  • P. Parida

Abstract

This article examines the linkages between inward FDI, services trade (export and import) and economic output using co-integration and VECM causality test. These linkages have been explored both at the aggregate and at the sectoral levels (manufacturing and services). The empirical findings confirm the long-run relationship among these variables. Causality results indicate the presence of bi-directional causal relationship between FDI and economic output as well as between services exports and economic output. The results also bring out feedback relationship between services export and FDI, reconfirming the presence of complementary relationship between the two. At the sectoral level, we find at least a unidirectional causality from FDI and services exports to both manufacturing and services output and also cross-sectoral spillover effects from manufacturing output to services output and vice versa. Copyright Springer-Verlag 2013

Suggested Citation

  • Ranjan Dash & P. Parida, 2013. "FDI, services trade and economic growth in India: empirical evidence on causal links," Empirical Economics, Springer, vol. 45(1), pages 217-238, August.
  • Handle: RePEc:spr:empeco:v:45:y:2013:i:1:p:217-238
    DOI: 10.1007/s00181-012-0621-1
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    7. Jeffrey A. EDWARDS & Cephas B. NAANWAAB & Alfredo A. ROMERO, 2017. "Effect of FDI on real per capita GDP Growth: A Rolling Window Panel Analysis of 60 countries, 1982-2011," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 17(1), pages 19-36.
    8. Abraham BABU, 2018. "Causality between foreign direct investments and exports in India," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(4(617), W), pages 135-144, Winter.
    9. Nath, Hiranya K. & Liu, Lirong & Tochkov, Kiril, 2015. "Comparative advantages in U.S. bilateral services trade with China and India," Journal of Asian Economics, Elsevier, vol. 38(C), pages 79-92.
    10. Alexander Maune, 2019. "Trade in Services-Economic Growth Nexus: An Analysis of the Growth Impact of Trade in Services in SADC Countries," Journal of Economics and Behavioral Studies, AMH International, vol. 11(2), pages 58-78.
    11. Yoon Jung Choi & Jungho Baek, 2017. "Does FDI Really Matter to Economic Growth in India?," Economies, MDPI, vol. 5(2), pages 1-9, June.
    12. Mini P. Thomas, 2016. "Estimation of Income and Price Elasticities of India’s Trade in Services," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 17(1), pages 27-45, March.
    13. Ghosh, Taniya & Parab, Prashant Mehul, 2021. "Assessing India’s productivity trends and endogenous growth: New evidence from technology, human capital and foreign direct investment," Economic Modelling, Elsevier, vol. 97(C), pages 182-195.
    14. Keshab Bhattarai & Vipin Negi, 2020. "FDI and Economic Performance of Firms in India," Studies in Microeconomics, , vol. 8(1), pages 44-74, June.
    15. Michel Lioussis & Mònica Serrano, 2022. "Services trade contribution on global income generation (2000 - 2014) Abstract: This paper investigates the contribution of services trade to the variation of global income generation for the period o," UB School of Economics Working Papers 2022/423, University of Barcelona School of Economics.
    16. Hiranya K. Nath & Binoy Goswami, 2018. "India’s comparative advantages in services trade," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 8(2), pages 323-342, August.
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    More about this item

    Keywords

    FDI; Services trade; Economic growth; Co-integration; VECM causality; E23; E24; F13; F2; O54;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F2 - International Economics - - International Factor Movements and International Business
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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