Long Run Causal Nexus between Foreign Direct Investment and Foreign Trade in India

ICFAI Journal of Applied Economics, Vol. 6, No. 5, 2007

11 Pages Posted: 3 May 2013 Last revised: 20 Jul 2013

See all articles by K. Sham Bhat

K. Sham Bhat

Pondicherry University

Durairaj Kumarasamy

Consultant, ASEAN India Centre, Research and Information System for Developing Countries

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2007

Abstract

Cointegration technique and error correction model was employed to examine the longrun causal nexus between foreign direct investment and foreign trade (imports and exports) in India. The data bases were on monthly basis and it covered from July 1992 to October 2003. By and large, the analysis reveals (i) There is one-way causal linkage from import to foreign direct investment and it is consistent with the traditional step by step sequences of servicing foreign markets, and (ii) There is a unidirectional causality from export to foreign direct investment and it may be due to the outward oriented export led development policy which will attract foreign direct investment inflow in India in the short-run.

Keywords: Foreign Direct Investment, Foreign Trade, Cointegration, Granger Causality, India

JEL Classification: F14, F21, F23

Suggested Citation

Sham Bhat, K. and Kumarasamy, Durairaj, Long Run Causal Nexus between Foreign Direct Investment and Foreign Trade in India (May 1, 2007). ICFAI Journal of Applied Economics, Vol. 6, No. 5, 2007, Available at SSRN: https://ssrn.com/abstract=2259226

K. Sham Bhat

Pondicherry University ( email )

Pondicherry 605 014
India

Durairaj Kumarasamy (Contact Author)

Consultant, ASEAN India Centre, Research and Information System for Developing Countries ( email )

India Habitat Centre
Lodhi Road
New Delhi, 110 003
India
8287254499 (Phone)
8287254499 (Fax)

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