Title: Trends and Determinants of Foreign Direct Investment in India: A Study of the Post-Liberalization Period
Abstract: (ProQuest: ... denotes formulae omitted.)INTRODUCTIONIndia makes an increasingly significant use of Foreign Direct Investment (FDI), which works as a volatile source of finance (Moosa and Cardak, 2005) in different sectors such as infrastructure, telecommunication, power, insurance, airports, road modernization for the improvement of these sectors. For this reason, foreign investors want to know which sectors are more attracted to FDI and what kind of policies are followed by these sectors. However, some sectors (pharmaceuticals, agriculture and airlines services) have not yet taken full benefits of FDI inflows (i.e., new technology, promote production, high rate of return and new opportunities). According to World Investment Report (2002) 208 changes related to FDI policies have been made by 71 countries in 2001. These changes have proved favorable for the foreign investors and domestic investors.Past studies (Moosa and Cardak, 2006; Schneider and Frey, 1985; and Gastanaga, Nugent and Pashamova, 1998) were generally considerate about the determinants of FDI, which are domestic market size, trade openness, labor cost, wage rate, exchange rate and infrastructure. Most of the studies focused on the cross and panel data sample for the determinants of FDI in the case of developing countries (See, Gastanaga, Nugent and Pashamova, 1998; Globerman and Shapiro, 2002; and Vadlamannati et al., 2009). On the other hand, only few studies (Zheng, 2009; Azam and Lukman, 2010; Dhingra and Sidhu, 2011) have actually acknowledged the policies (pre-revised and post- revised) and trend of FDI inflow. With regard to combined research on policies, trend, and determinants of FDI in India exists an even more famine literature. So that, objective of our paper is to fill this research gap by highlight FDI policy changes, identify FDI trends, and analyze the main relevant determinants of FDI in India. A large number of studies (Jajri, 2009; Awan, Zaman and Khan, 2010; Amal, Tobio and Raboch 2010; Tosompark and Daly, 2010) has been conducted in different countries (Pakistan, Latin America, Thailand, Malaysia, Jordan, Italian) but India still needs to have a vigorous discussion about current changes in FDI polices, trend, and its relevant determinants because India's relatively GDP growth is high instead of other developing countries which directly contribute to the world economic growth. This study provides worthy evidence related to policies (pre and post revised) and trend of FDI (Year wise, route wise, country wise, sector wise, state wise and region wise). On the other hand, to examine the determinants of FDI and in this context, the time series properties of the data over the period 1991-2010 are meticulously examined. Additionally, this time series analysis with help of ordinary least square method after checked all the time series properties which were ignored in the existing empirical work.This paper is organized as follows: Section II presents a framework of FDI Policy in India. Section III discusses the trends of FDI inflows. Section IV provides a literature review on the determinants of FDI inflows and its distributions on a conceptual and empirical basis. Section V describes the prudence behind the variables selected for the methodology and the empirical outcome are furnished in section VI. The policy implications are made in Section VII along with the limitations and conclusion.FDI POLICY FRAMEWORK IN INDIAPolicy plays an imperative role in the FDI inflows in India. According to the worldwide ground rules, the capability of a country to attract FDI depends upon its government guidelines. This section shows a review and comparison of India's FDI policy structure before liberalization and after liberalization (see Table 1).Major changes were effected in India's economic policy in 1991 with the main objective of promoting economic growth and integrating Indian economy with the world economy. Industrial policy reforms have been reduced all restrictions to the investment projects and tried to enlarge all business activities and admittance to foreign equipment and financial support. …
Publication Year: 2015
Publication Date: 2015-07-01
Language: en
Type: article
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Cited By Count: 17
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