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VOL. 12, ISSUE 8 (2025)
Causal relationship between FDI and Economic growth in India
Authors
Dr. Priti Kumari
Abstract
For many major nations, including India, foreign direct investment
(FDI) has been a key factor in the process of economic expansion. For a long
time, it has played a significant role in the expansion of the Indian economy,
and India continues to view FDI as only driver of the Indian economy and
continuously modifies FDI policy to reap the rewards of economic expansion.
Thus, the study uses Granger causality and the cointegration approach to
examine the causal relationship between foreign direct investment (FDI) and
economic development as well as its long-term correlation in India for the
years 2000–2020. The cointegration results show that, at the 0.05 percent
significance level, GDP and FDI are cointegrated. The study found that
cointegration is present in the short time period not in the long and the
granger causality test suggests that there is the uni-directional relationship
between the studied variables. FDI inflows in India affects to the economic
growth but the GDP (Measure of Economic Growth) doesn’t affect to FDI inflows
within India. The results show that there seems to have been uncertainty
throughout the study period, which is why there is a negative correlation
between the factors that are currently in place. Because the coefficient value
of FDI is negative. The study suggests that this negative relation is not
permanent India may need to strategically target FDIs in order to increase and
improve their quality, even though it focused on reforms to attract FDI. This
can be achieved by maintaining an investor-friendly environment and
highlighting infrastructure, tax breaks, and sensible trade policies, among
other things, to attract more FDI.
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Pages:68-74
How to cite this article:
Dr. Priti Kumari "Causal relationship between FDI and Economic growth in India". International Journal of Multidisciplinary Research and Development, Vol 12, Issue 8, 2025, Pages 68-74
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