Economic Growth and Macro Variables in India: An Empirical Study
Ismail, Saba and Ahmed, Shahid, Economic Growth and Macro Variables in India: An Empirical Study, Journal of Economics and Development, Vol.17, No.3, December 2015, pp. 42-59, ISSN 1859 0020
18 Pages Posted: 30 Dec 2015
Date Written: December 28, 2015
The research objective of this paper is to explore the empirical linkages between economic growth and foreign direct investment (FDI), gross fixed capital formation (GFCF) and trade openness in India (TOP) over the period 1980 to 2013. The study reveals a positive relationship between economic growth and FDI, GFCF and TOP. This study establishes a strong unidirectional causal flow from changes in FDI, trade openness and capital formation to the economic growth rates of India. The impulse response function traces the positive influence of these macro variables on the GDP growth rates of India. The study also reveals that the volatility of GDP growth rates in India is mainly attributed to the variation in the level of GFCF and FDI. The study concludes that the FDI inflows and the size of capital formation are the main determinants of economic growth. In view of this, it is expected that the government of India should provide more policy focus on promoting FDI inflows and domestic capital formations to increase its economic growth in the long-term.
Keywords: GDP growth; FDI; capital formation; trade openness; India.
Suggested Citation: Suggested Citation