| By: |
Chandana Chakraborty;
Peter Nunnenkamp |
| Abstract: |
Foreign direct investment (FDI) has boomed in post-reform India. Moreover, the
composition and type of FDI has changed considerably since India has opened up
to world markets. This has fuelled high expectations that FDI may serve as a
catalyst to higher economic growth. We assess the growth implications of FDI
in India by subjecting industry-specific FDI and output data to Granger
causality tests within a panel cointegration framework. It turns out that the
growth effects of FDI vary widely across sectors. FDI stocks and output are
mutually reinforcing in the manufacturing sector. In sharp contrast, any
causal relationship is absent in the primary sector. Most strikingly, we find
only transitory effects of FDI on output in the services sector, which
attracted the bulk of FDI in the post-reform era. These differences in the
FDI-growth relationship suggest that FDI is unlikely to work wonders in India
if only remaining regulations were relaxed and still more industries opened up
to FDI. |
| Keywords: |
foreign direct investment, economic reform, growth effects, India, cointegration, causality |
| JEL: |
F21 F23 O53 |
| Date: |
2006–03 |
| URL: |
http://d.repec.org/n?u=RePEc:kie:kieliw:1272&r=fdg |