Faculty of Commerce, Department of Applied Business Economics, Dayalbagh Educational Institute(Deemed University), Dayalbagh, Agra-282005, Uttar Pradesh, India
JEL Classification: C58, C87, E21, F32, F4, and H63
This study is an attempt to examine the long run and short run causality relationship between external debts, foreign direct investment and Current Account Balance in reference to India from 2000–01 to 2012–13.
Quarterly data have been taken to test the relationship between selected variables (EDs, FDI & CAB) by using Granger Causality and VECM model.
The study reveals that all the selected variables are integrated at I(1). The result of VECM model shows only a long run causality relationship (EDS and FDI to CAB) not in short run.
This study is limited to EDs and FDI as the determinants of CAB. Therefore, such study which includes more numbers of indicators would be appropriated to replicate the results of this study.
In order to improve CAB, it is necessary to keep most favorable volume of external debt by the optimum utilization of existing domestic resources, which will lead to increase in production and economic growth of developing countries like India.
Current Account Balance (CAB), External Debt (EDs), Foreign Direct Investment (FDI), VECM
