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FDI-Growth Nexus in India: Cointegration and Causality

In: Foreign Capital and Economic Growth in India

Author

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  • Mahendra Pal

    (University of Delhi)

Abstract

This chapter tests empirically the long-run relationship between growth rate and FDI in India and their causal direction with the help of cointegration, VECM, IRF, VDC and pairwise Granger causality for the period 1971–2013. After confirming the order of integration, results confirm the existence of positive and long-run relationship. Trace test and maximum eigenvalue both indicate one cointegrating equation at the 0.05 level. Granger causality confirms unidirectional causality running from FDI to growth in India. ECT term in VECM model shows minus sign and its value is equal to - 0.41 which demonstrates that 41% disequilibrium is corrected in one year. Results are also reconfirmed with the JRF and VDC. Findings are mainly consistent with the findings of de Mello (1997); Huang (2004); Rati and Zhang (2001).

Suggested Citation

  • Mahendra Pal, 2023. "FDI-Growth Nexus in India: Cointegration and Causality," Springer Books, in: Foreign Capital and Economic Growth in India, chapter 0, pages 61-83, Springer.
    • Handle: RePEc:spr:sprchp:978-981-99-2299-4_3
    DOI: 10.1007/978-981-99-2299-4_3
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