FDI and Economic Growth in India

The gains from foreign direct investment (FDI) inflows are unquestionable, as they contribute to economic growth through an increase in productivity by providing new investments, better technologies, and managerial skills to the host country. While trade liberalization facilitates economic growth through efficiency in production, by utilizing the abundant factors of production more effectively and absorbing better technologies from advanced countries, it may also harm the growth process through various forms of macro-economic instability and balance of payments crisis. Thus, it is a challenge for developing countries like India to explore the role FDI and trade liberalization should play in the country’s economic growth. This book examines the relationship between FDI and economic growth in India, and it also identifies the motivating factors and problems of FDI inflows. The book employs bi-variate regression and ordinary least squares (OLS) estimation to examine the effect of FDI on gross domestic product (GDP) growth, using data for the period of 1974-2011. The results show that FDI is positively correlated with GDP growth and has a positive effect on India’s economic growth.