Does Inward Foreign Direct Investment Stimulate GDP in India?

Since the advent of LPG strategy, Indian economy has been vigorously trying to attract the inflow of/inward FDIs. The role of inward FDI in stimulating the growth process has been a crucial issue in many emerging countries including India. This study empirically estimates the effect of FDI on GDP in India, using the cointegration approach for the period1990 to 2013. The result of ordinary least square method suggests that there is positive relationship between the inward FDI and GDP and vice versa. Using the unit root (ADF) Test it is found that both the inward FDI and GDP are found stationary at second difference level. Johansen cointegration test confirmed the existence of long run equilibrium relationship between these two variables. Finally the Granger causality test established the presence of uni-directional causality which runs from GDP to Inward FDI in the country during the study period. Based on the findings, this study proposes that there is an immense need to create the cordial environment in order to attract more FDI into India.