Cointegration approach towards causality of foreign direct investments and gross domestic product in India

Shwetima Joshi, University of Texas at El Paso

Abstract

The link between foreign direct investments and the growth for India has been explored using a cointegration model with vector error correction model. The existence of four cointegrating vectors between FDI, GDP, price level, exchange rate and exports and imports over GDP have been deducted. These cointegrating vectors capture the long run and short run relationship between the aforementioned entities. The model Vector Error Correction Model (VECM) reveals that there exists a long run relationship between FDI inflows, exports and imports over GDP, the price level, and exchange rates. In the long run FDI inflows of India depend on the openness of India towards international trade, price index of goods in India and the value of its currency in the international market. Whereas, the short run FDI inflow changes according to the value of its currency, openness of India towards international trade and growth of India.^

Subject Area

Economics, General

Recommended Citation

Joshi, Shwetima, "Cointegration approach towards causality of foreign direct investments and gross domestic product in India" (2014). ETD Collection for University of Texas, El Paso. AAI1564679.
http://digitalcommons.utep.edu/dissertations/AAI1564679

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