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Do the FDI, Economic growth and Trade affect each other for India: An ARDL Approach

  • Singh, Anshul

This paper examines the dynamic causal relationships between foreign direct investment (FDI), trade and economic growth in India by applying the bounds testing (ARDL) approach to cointegration for the period from 1970 to 2012. The bounds tests suggest that the variables of interest are bound together in the long-run when GDP per capita is the dependent variable. The empirical findings confirm that there is bi-directional Granger causality between FDI and trade, unidirectional Granger causality running from FDI to economic growth and from economic growth to capital investment but there is no Granger causality from economic growth to FDI and capital investment to per capita GDP.

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File URL: http://mpra.ub.uni-muenchen.de/51447/1/MPRA_paper_51447.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 51447.

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Date of creation: 10 Nov 2013
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Handle: RePEc:pra:mprapa:51447
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  1. Helpman, Elhanan, 1984. "A Simple Theory of International Trade with Multinational Corporations," Scholarly Articles 3445092, Harvard University Department of Economics.
  2. Francisco Rodriguez & Dani Rodrik, 2001. "Trade Policy and Economic Growth: A Skeptic's Guide to the Cross-National Evidence," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 261-338 National Bureau of Economic Research, Inc.
  3. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
  4. Findlay, Ronald, 1978. "Some Aspects of Technology Transfer and Direct Foreign Investment," American Economic Review, American Economic Association, vol. 68(2), pages 275-79, May.
  5. Paul R. Krugman, 1985. "Increasing Returns and the Theory of International Trade," NBER Working Papers 1752, National Bureau of Economic Research, Inc.
  6. Gene M. Grossman & Elhanan Helpman, 1990. "Trade, Knowledge Spillovers, and Growth," NBER Working Papers 3485, National Bureau of Economic Research, Inc.
  7. Kwan, Andy C C & Wu, Yangru & Zhang, Junxi, 1999. " Fixed Investment and Economic Growth in China," Economic Change and Restructuring, Springer, vol. 32(1), pages 67-79.
  8. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
  9. Frimpong, Joseph Magnus & Oteng-Abayie, Eric Fosu, 2006. "Bounds testing approach: an examination of foreign direct investment, trade, and growth relationships," MPRA Paper 352, University Library of Munich, Germany, revised 09 Oct 2006.
  10. Shiva S. Makki & Agapi Somwaru, 2004. "Impact of Foreign Direct Investment and Trade on Economic Growth: Evidence from Developing Countries," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(3), pages 795-801.
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