A study of causality between international trade and international capital inflow in India

In the developing countries there is the scarcity of capital for investment which has affected the economic situation of these nations. The International trade and capital inflow have played a noteworthy role in the process of development and growth. Since 1991 India has undertaken various reform measures to liberalize the economy. Over last several years restrictions on various components of capital account have been relaxed in India which affect level of international trade and international capital flows. The study has been under take to find causality between international capital inflow and international trade in India. The data of variables such as export, import and international capital inflows (ICF) from 1998 to 2016 has been used to generate result. Toda-Yamamoto (1995) modified Granger Causality approach under vector autoregressive (VAR) system has been used to investigate causality, considering structural break point. The result indicated that there is not direct causality relationship between international trade and international capital inflows in India.