Economic Reforms, FDI, and Economic Growth in India: A Sector Level Analysis

Chandana Chakraborty, Peter Nunnenkamp

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88 Scopus citations

Abstract

Booming foreign direct investment (FDI) in post-reform India is widely believed to promote economic growth. We assess this proposition by subjecting industry-specific FDI and output data to Granger causality tests within a panel cointegration framework. It turns out that the growth effects of FDI vary widely across sectors. FDI stocks and output are mutually reinforcing in the manufacturing sector, whereas any causal relationship is absent in the primary sector. Most strikingly, we find only transitory effects of FDI on output in the services sector. However, FDI in the services sector appears to have promoted growth in the manufacturing sector through cross-sector spillovers.

Original languageEnglish
Pages (from-to)1192-1212
Number of pages21
JournalWorld Development
Volume36
Issue number7
DOIs
StatePublished - 1 Jul 2008

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Keywords

  • India
  • causality
  • cointegration
  • economic reform
  • foreign direct investment
  • growth effects

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