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2014•SSRN Electronic JournalOpen access

Time Series Analysis of Foreign Direct Investment and Economic Growth: A Case Study of India

Gurmeet Singh

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Abstract

The study investigates the relationship between the foreign direct investment (FDI) and Gross Domestic Product (GDP) over the period 1975-2013. Granger causality test & Johansen’s co-integration test have been applied to explore the direction of causality & long run relationship between the variables foreign direct investment (FDI) and gross domestic product (GDP). The result shows that the FDI and the GDP are co-integrated and, hence, a long-run equilibrium relationship exists between them. It is observed that the FDI positively relate to GDP. In the Granger causality sense, FDI causes the GDP in the both long-run and short-run. There is bidirectional causality exists between FDI and GDP.

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What this paper is about

The study investigates the relationship between the foreign direct investment (FDI) and Gross Domestic Product (GDP) over the period 1975-2013. Granger causality test & Johansen’s co-integration test have been applied to explore the direction of causality & long run relationship between the variables foreign direct investment (FDI) and gross domestic product (GDP). The result shows that the FDI and the GDP are co-integrated and, hence, a long-run equilibrium relationship exists between them. It is observed that the FDI positively relate to GDP. In the Granger causality sense, FDI causes the GDP in the both long-run and short-run. There is bidirectional causality exists between FDI and GDP.

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Available abstract

The study investigates the relationship between the foreign direct investment (FDI) and Gross Domestic Product (GDP) over the period 1975-2013. Granger causality test & Johansen’s co-integration test have been applied to explore the direction of causality & long run relationship between the variables foreign direct investment (FDI) and gross domestic product (GDP). The result shows that the FDI and the GDP are co-integrated and, hence, a long-run equilibrium relationship exists between them. It is observed that the FDI positively relate to GDP. In the Granger causality sense, FDI causes the GDP in the both long-run and short-run. There is bidirectional causality exists between FDI and GDP.

Key concepts: Foreign direct investment, Granger causality, Economics, Gross domestic product, Causality (physics), Gross private domestic investment, Real gross domestic product, Short run

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