Foreign Direct Investment and Exports in India: Some Empirical Insights

Jana, Shib Sankar; Sahu, Tarak Nath; Pandey, Krishna Dayal

doi:10.5958/0976-478x.2017.00041.6

Cited by 3 publications

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“…Looking at the theoretical and empirical perspective we observe that Harrison (1996) in general perspective views FDI to stimulate exports from domestic sectors through industrial linkage or spill-over effects which further instigates high-demand stimulus for domestic enterprises and results in export promotion. FDI is also believed to enhance export-oriented productivity which further improves export performance (Jana et al 2017 andSahu andPandey 2018). There is a widely accepted view that FDI promotes exports of the host country by augmenting domestic capital for exports, enabling the transfer of technology and production of new products, facilitating access to new and large foreign markets, and providing training for the local workforce to enhance technical and managerial skills (Zhang 2005).…”

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How far is FDI relevant to India’s foreign trade growth? An empirical investigation

Jana¹,

Sahu

Pandey

2020

Economic Structures

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The World Development Report (World Bank 1987) outlines a crucial observation, that is, while average annual economic growth rate of the Four Asian Tigers, namely Hong Kong, Singapore, South Korea and Taiwan, adopting export-led growth strategy was at 9.5% during the period of 1963-1973, it was only 4.1% in the countries which followed the import-substitution industrialization (ISI) strategy. With the same ISI strategy, India has also witnessed an average economic growth of only around 3.5% (famously known as the Hindu growth rate) during the 1950s to 1980s. In fact, at the time, the approach to solve economic crises like low growth rate, huge Current Account Deficit (CAD) was still inward. Besides, all the efforts undertaken to solve this were through India's own 'resources and ingenuity' (Economic Survey 1991-1992). Of late, the country's policymakers begun to realize the impact of adopting free-market and outwardoriented trade policies considering the remarkable growth attained by the East Asian tigers who became independent concurrently with India. Witnessing the economic success achieved by the East Asian tigers, the neo-classical economists also begun to rely

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confidence: 99%

How far is FDI relevant to India’s foreign trade growth? An empirical investigation

Jana¹,

Sahu

Pandey

2020

Economic Structures

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“…According to Harrison (1996), FDI can have the potential to stimulate exports through creating industrial linkage or spill-over effects, which further instigates high demand stimulus for domestic enterprises and results in export promotion. FDI is also believed to enhance export-oriented productivity that further improves export performance (Jana et al, 2017). There is a commonly perceived view that FDI augments domestic capital for export, enables technology transfer, and facilitates access to new and large foreign markets and training for the local workforce to enhance technical and managerial skills (Zhang, 2005).…”

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Growth in Foreign Trade in Liberalized India: The Relevance of FDI

Jana¹,

Sahu

Pandey

2020

Global Business Review

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Driven by the need of an economic model that can explain the foreign direct investment (FDI)–export relationship, especially in post-liberalized context, we make a special inquiry on whether FDI has a significant export-promoting impact in India under a time-varying parameter model with vector autoregressive specification. The Johansen’s co-integration test suggests a significant and positive long-run co-movement between FDI and export. The vector error correction model (VECM) confirms a unidirectional long-run causality from export to FDI. However, the Granger causality test establishes a bi-directional causal relationship between these variables in short run. Further, the foreign trade (FT) is found to be a strongly exogenous variable as per the variance decomposition analysis. Again, the impulse response function analysis suggests that the responses generated from a positive shock of FT to FDI and vice versa are small and initially negative, afterward remain steadily positive at a constant level. The study finally recommends the policymakers to channelize the inward-FDI into tradable goods industries rather than only linking it to service sector growth to reap the long-term benefit. In this regard, China’s effort to channelize inward-FDI into manufacturing sectors and the resultant momentous success in export performance can be taken as a classic example for FDI-led foreign trade promotion.

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