Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/3796
Authors: 
Chakraborty, Chandana
Nunnenkamp, Peter
Year of Publication: 
2006
Series/Report no.: 
Kieler Arbeitspapiere 1272
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.
Subjects: 
Foreign direct investment
Economic reform
Growth effects
India
Cointegration
Causality
JEL: 
F21
F23
O53
Document Type: 
Working Paper

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