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

Chandana Chakraborty; Peter Nunnenkamp

doi:10.1016/j.worlddev.2007.06.014

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

Chandana Chakraborty, Peter Nunnenkamp

Economics

Research output: Contribution to journal › Article › peer-review

156 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 language	English
Pages (from-to)	1192-1212
Number of pages	21
Journal	World Development
Volume	36
Issue number	7
DOIs	https://doi.org/10.1016/j.worlddev.2007.06.014
State	Published - Jul 2008

Keywords

India
causality
cointegration
economic reform
foreign direct investment
growth effects

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

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10.1016/j.worlddev.2007.06.014

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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.",

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AU - Chakraborty, Chandana

AU - Nunnenkamp, Peter

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N2 - 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.

AB - 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.

KW - India

KW - causality

KW - cointegration

KW - economic reform

KW - foreign direct investment

KW - growth effects

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DO - 10.1016/j.worlddev.2007.06.014

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SN - 0305-750X

VL - 36

SP - 1192

EP - 1212

JO - World Development

JF - World Development

IS - 7

ER -

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

Abstract

Keywords

UN SDGs

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