FDI inflow and Economic Growth in India An Empirical Analysis

This study has assessed the impact of the growth of FDI inflow along with some other potential determinants on economic growth in India. Our econometric analysis, based on a secondary time series data, demonstrates that real GDP and other selected macroeconomic aggregates have grown in a favourable direction in the era of strong liberalization (1991–2010) in contrast to the moderate liberalization era (1980–1990). In order to estimate the economic growth measured by the rate of change of real GDP we have formulated a linear regression model following the generalized version of the Solow-Swan growth model. Augmented Dickey Fuller test and Phillips Perron test statistics confirm that the variables included in the regression model are stationary. This study has revealed that the growth of domestic capital formation has a positive and significant contribution to economic growth. Population growth poses the primary constraint against economic growth. However, growth of openness and growth of FDI inflow are immaterial in the determination of the economic growth in India.