An Empirical Analysis of Macroeconomic Determinants of Foreign Direct Investment Inflows to India

By : Syed Tabassum Sultana

Page No: 235-245

Abstract
Foreign direct investment (FDI) is of growing significance in propelling economic growth of any nation. It presents several advantages to both the investing country and the host country. For any host country, it acts as a mechanism to supplement domestic capital as it provides access to superior technology and further increases the existing levels of efficiency and productivity. It also generates new production opportunity, provides managerial skills needed to stimulate economic growth and gain access to regional and global markets. Investing countries have attractive prospects for the capital outflow and gain an entry into emerging markets or economies. Foreign direct investment presents a win-win situation to the host and the home countries. Numerous macroeconomic variables of the host country directly or indirectly affect the inflow of FDI. The current study attempts to identify the macroeconomic factors that determine the flow of FDI inflows in India from 1981 to 2014. It analyses in-depth the relationship between FDI and macroeconomic factors like GDP, Exchange Rate, Imports, Exports, Corporate Tax, External Debt, Interest Rate and Inflation. Firstly, the current study finds that the FDI inflows to India have followed a mixed trend during the said period. Secondly, it concludes that FDI inflows are negatively correlated with respect to interest rate and corporate tax and positively correlated with respect to the other variable like GDP, Exchange Rate, Imports, Exports, External Debt and Inflation. Thirdly, it finds a significant correlation between FDI and Interest Rate, Exchange Rate, Exports, Imports and External Debt. Lastly, Macroeconomic Determinants like Exchange Rate, Exports GDP and Imports fuel the flow of FDI and FDI in turn multiplies External Debt and Exports. However, the relationship between Exports and FDI is bidirectional.

Authors :
Syed Tabassum Sultana : Principal, Matrusri Institute of PG Studies, 16-1-486, Saidabad, Hyderabad, India