Essay Example on Impact of Foreign Direct Investment on Economic Indicators








MET 17304 Impact of Foreign Direct Investment on Economic Indicators an evidence from India The Indian economy one of the fastest growing economies in the world ranked as the seventh largest economy on the scale of nominal GDP and is the third largest by purchasing power parity PPP after china and the United States of America One of the Key policy paradigm in the history of Indian Economy has been liberalization of Indian economy for Foreign Direct Investment FDI which plays a key role in supplementing the ever increasing investment requirement in the developing countries So is the case with India predominantly a political economy with one of the lowest tax GDP ratios in the world Also Fiscal Responsibility Budget Management FRBM Act 2003 has necessitated fiscal consolidation and has left much less fiscal space for public borrowing FDI therefore can be identified as one of the most effective tools for capital investment and thereby giving a boost to the economic activities The cumulative FDI inflow into India since the year 2000 until September 2017 has risen upto USD 518 bn and FDI in low in equity to the tune of USD 357 bn Major investor countries are Mauritius Singapore Japan UK and Netherlands contributing more than 70 of FDI inflow into India

Though numerous studies have thrown light on the relationship between the inflow of FDI and economic growth in developing countries including Tsai 1991 Wang and Swain 1997 Liu et al 1997 Borensztein Eduardo and Lee 1998 Zhang 2001 Sun and Parikh 2001 Bende Nabende et al 2001 Liu et al 2002 Shan 2002 they broadly report a beneficial effect of FDI on economic growth However despite increasing flows of FDI especially in recent years the relationship between FDI and economic indicators such as Gross Capital Formation Unemployment Rate Balance of Trade CPI Inflation Industry Value Added and Industrial Wages in India has not yet been examined thoroughly Only a few studies to date such as Pradhan 2002 Chakraborty and Basu 2002 Sahoo and Mathiyazhagan 2003 Agrawal 2005 Chakraborty and Nunnenkamp 2008 Agrawal and Khan 2011 and Dash and Parida 2013 have attempted to dwell upon the issue and have come up with mixed conclusions For example Pradhan 2002 employs a production function analysis to analyze the effect of inward FDI on economic growth in India he finds that FDI does not have significant positive growth impacts Also Agrawal 2005 confirms the findings of Pradhan 2002 in that FDI has had little to do with economic growth in India 

On the other hand Chakraborty and Nunnenkamp 2008 use a panel integration method to explore the dynamic relationship between FDI and economic growth Dash and Parida 2013 utilize a vector error correction VEC model in examining the issue they report in passing a beneficial effect of FDI on growth after controlling for trade While according to a study done by Yoon Jung Choi and Jungho Baek 2017 FDI in India shown very insignificant and mixed impact on GDP Policy paper seeks to study impact of FDI on economic indicators such as Industrial Value Added Industrial Wages Unemployment Rate Consumer Price Index CPI Balance of Trade BoT and Gross Capital Formation GCF Research Question How does FDI impact economic indicators in India Methodology The proposal seeks to test the following two hypotheses through policy paper i There is strong positive relationship between FDI and GDP GCF IW industrial value added UR and BoT ii These is a strong negative relationship between FDI and CPI inflation This research will examine time series data over a period of over 36 years 1980 to 2016 To test the above two hypotheses multiple regression analysis will be conducted using FDI inflow as the independent variable and GDP CPI inflation BoT GCF Industrial Value added and Unemployment rate as the six dependent variables

The historical data from 1980 to 2016 of FDI inflow GDP growth rate CPI inflation BOT GCF UR Industrial Value Added from the World Bank Reserve Bank of India and Ministry of Finance Govt of India will be used The methodology would follow Afzalur Rahman 2014 which has used multiple regression model References Rahman Afzalur 2014 Impact of Foreign Direct Investment on Economic Growth Empirical Evidence from Bangladesh Page 178 182 Aida Barkauskaite Violeta Naraskeviciute 2016 Foreign Direct Investment Impact on Economic Indicators of the Baltic Countries Sharma Mamta 2016 Impact of FDI on Indian Economy Agrawal and Khan 2011 Impact of FDI on GDP A Comparative Study of China and India Dash Ranjan Parida Purna 2013 FDI services trade and economic growth in India empirical evidence on causal links Choi Yoon Jung Baek Jungho 2017 Does FDI Really Matter to Economic Growth in India http dipp nic in sites default files FDI_FactSheet_Updated_September2017 pdf https www rbi org in scripts bs_viewcontent aspx Id 2513

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