Foreign Direct Investments (FDIs) and Opportunities for Developing
Economies in the World Market
by
Venkataramanaiah Malepati (University of Gondar, Ethiopia) and C. Mangala Gowri (University of Gondar,
Ethiopia)
Release Date: December,
2017|Copyright: © 2018 |Pages: 315
ISBN13: 9781522530268|ISBN10:
1522530266|EISBN13: 9781522530275|DOI: 10.4018/978-1-5225-3026-8
Chapter 1:Foreign Direct Investment, Technological Innovation, and
Export Performance: Empirical Evidence From Developing Asia (pages 1-24)—by-Arzu
Tay Bayramoglu, Tezcan Abasız
Chapter 2:Determinants of FDI Inflows in Developing Countries: A
Dynamic Panel Approach (pages 25-45)—by--Dinesh Kumar Choudhury, Prabhakara Rao
Chapter 3:The Role of Foreign Direct Investment in Less-Developed
Countries (pages 46-65)-by-
Chengchun Li, Sailesh K. Tanna
Chapter 4:Socio-Economic Impact of Foreign Direct Investment in
Developing Countries (pages 66-81)-by-Christopher Boachie, Eunice
Adu-Darko
Chapter 5:FDI as a Factor of Improving the Competitiveness of
Developing Countries: FDI and Competitiveness (pages 82-104)-by-Ivana S.
Domazet, Darko M. Marjanović
Chapter 6:The Relative Importance of Trade vs. FDI-Led Economic
Growth in Thailand (pages 105-122)-by-Sailesh Tanna, Kitja
Topaiboul, Chengchun Li
Chapter 7:FDI Inflows and Current Account Evidence From BIMSTEC
(pages 123-141)-by-
Nida Rahman, Shehroz Alam Rizvi
Chapter 8:The Comparative Study of the FDI in India and China in
Retail Sector (pages 142-168)
-by-Rita Naraindas Khatri
Chapter 9:M&A vs. Greenfield: FDI for Economic Growth in
Emerging Economies (pages 169-185)
-by-Sana Moid
Chapter 10:Patterns of Technology Acquisition: Upstream Linkages
Between MNEs and Local Suppliers (pages 186-212)-by-António Carrizo Moreira
Chapter 11:The Role of Governance on Foreign Direct Investment
Inflows: A New Theoretical Perspective and Cross-Country Analysis (pages
213-247)-by-Adem Gök
Chapter 12:Econometric Analysis of India's Foreign Direct
Investment Inflows (pages 248-275)
-by-Debesh Bhowmik
Chapter 12
Econometric Analysis of India’s Foreign Direct Investment Inflows
Debesh Bhowmik(International
Institute for Development Studies, Kolkata, India)
ABSTRACT
In this chapter, the author
explains the trend lines, random walk, stationary,
structural breaks, and volatility
of FDI inflows in India during 1971-2015. Both
log linear and exponential trends
are significant. FDI inflows are stationary and
showed four structural breaks in
1985, 1994, 2000, and 2006. The author found the
relation among FDI inflows,
growth rate, interest rate, inflation rate, exchange rate,
fiscal deficit, external debt,
and trade openness with the help of Granger causality,
Johansen cointegration test, and
vector error correction models. Trace statistic
has four cointegrating equations,
and Max Eigen statistic has three cointegrating
equations. The speed of the
vector error correction process is more or less slow
except for change in interest
rate and change in inflation rate, which are significant
where VECM is stable and
diverging. Limitations and future scope of research is
added. Policy recommendations are
also included.
INTRODUCTION
Foreign direct investment (FDI)
is an investment in a business by an investor from
another country for which the
foreign investor has control over the company purchased.
The Organization of Economic
Cooperation and Development (OECD) defines
control as owning 10% or more of
the business. Businesses that make foreign direct
investments are often called
multinational corporations (MNCs) or multinational
enterprises (MNEs). FDI provides
a win – win situation to the host and the home countries. FDI as a strategic
component of investment is needed by India for its
sustained economic growth and
development. FDI is necessary for creation of jobs,
expansion of existing
manufacturing industries and development of the new one.
Indeed, it is also needed in the
healthcare, education, R&D, infrastructure, retailing
and in long term financial
projects. Need of FDI depends on saving and investment rate
in any country. Foreign Direct
investment acts as a bridge to fulfill the gap between
investment and saving. In the
process of economic development foreign capital helps
to cover the domestic saving
constraint and provide access to the superior technology
that promotes efficiency and
productivity of the existing production capacity and
generate new production
opportunity. Foreign investments mean both foreign portfolio
investments and foreign direct
investments (FDI). FDI brings better technology and
management, marketing networks
and offers competition, the latter helping Indian
companies improve, quite apart
from being good for consumers. The effectiveness
of FDI in bringing about the
desired growth may be constrained by the level of
infrastructural developments and
other macroeconomic variables . Infrastructural
development, openness and domestic
market size are major determinants of FDI.
Even, exchange rate and interest
rate may influence FDI inflows. Besides, balance of
payments adjustment is a good
correlation with FDI flows. Political instability and
financial crises influence FDI
flows negatively. Alongside opening up of the FDI
regime, steps were taken to allow
foreign portfolio investments into the Indian stock
market through the mechanism of
foreign institutional investors. The objective was
not only to facilitate non‐debt
creating foreign capital inflows but also to develop the
stock market in India, lower the
cost of capital for Indian enterprises and indirectly
improve corporate governance
structures. FDI have helped India to attain a financial
stability and economic growth
with the help of investments in different sectors. FDI
has boosted the economic life of
India.
By allowing MNC in Indian
economy, the government of India with the help of
World Bank and IMF introduced the
macro-economic stabilization and structural
adjustment program. As a result
of these reforms India open its door to FDI inflows
and adopted a more liberal
foreign policy in order to restore the confidence of foreign
investors. Further, under the new
foreign investment policy Government of India
constituted FIPB (Foreign
Investment Promotion Board) whose main function was
to invite and facilitate foreign
investment.
OBJECTIVE OF THE STUDY
In this paper, the author
endeavors to explain the patterns of behavior of India’s foreign
direct investment inflows during
1971-2015. Besides, the author tries to relate FDI
inflows with macro variables like
growth rate, interest rate, inflation rate, exchange
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