The Effects of Foreign Direct Investment on Economic Growth: An Empirical Study on the Indian Economy
Author(s): Hamidullah Furmolly
Institution: Master of Economics from the University of Ankara, Turkey
Category: Article, IJMMU
Topics: Foreign Direct Investment; Economic Growth; India; Empirical Study
Abstract: Investment is widely recognized as a key driver of economic growth and development. In recent decades, Foreign Direct Investment (FDI) has emerged as a significant characteristic of the global economy, with a notable increase in FDI flows since the 1970s. This trend has made FDI a crucial element of growth strategies in both developed and developing countries. For developing nations, FDI is particularly important as a primary source of capital accumulation, especially in areas facing capital shortages. Developing countries typically address their capital needs through borrowing and FDI. While borrowing can be costly, FDI provides additional advantages, such as technology transfer, improved management practices, and valuable information, all contributing to economic development. FDI positively impacts growth processes, international business, and human capital accumulation. This research investigates the relationship between FDI and economic growth in India using a simple linear regression model with time series data from 1970 to 2013. The analysis employs E-Views and Excel, incorporating unit root tests for stationarity, the Zivot-Andrews structural break test, and Ordinary Least Squares (OLS) regression. The findings reveal a positive relationship between FDI flows and economic growth in India, particularly since the economic reforms of the early 1990s, highlighting FDI’s significant role in promoting economic growth in the country.
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