Impact of FDI on GDP per capita in India using Granger causality

Nadar, Anand (2021): Impact of FDI on GDP per capita in India using Granger causality.

Abstract

This research investigates the causality between FDI and GDP per capital in the context of India. Using WDI data from 1970-2019, We applied two types of Granger causality tests: long-run causality and shortrun causality tests. For the long-run causality, we applied pairwise Granger causality test, and for shortrun, we performed the Wald test approach under VECM (Vector Error Correction Model). The long-run causality test indicates that there is a unidirectional causality running from FDI to GDP per capita, implying that FDI causes the GDP per capita to change and not vice-versa. The short-run causality test indicates that there is no causality between FDI and GDP per capita, suggesting that, in the short-run, FDI and GDP per capita does not cause each other. The central policy conclusion from this study is that although FDI does not cause GDP per capita in the short-run, it causes in the long-run. Therefore, according to our study, India should attract FDI to sustain a long-run growth of GDP per capita.

• Item Type: MPRA Paper
• Language: English
• Keywords: GDP per capita; Granger causality; FDI; India; VECM
• Subjects: F - International Economics > F0 - General; F - International Economics > F1 - Trade; F - International Economics > F2 - International Factor Movements and International Business

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