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
Date Written: May 1, 2007
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: Suggested Citation