Affiliation:
1. Cooch Behar Panchanan Barma University, India
Abstract
This chapter investigates the association between FDI inflow, exchange rate and GDP in India for the period 1990-2021. How changes in exchange rate affected the openness measures of India such as FDI and vice versa are the matter of study of this chapter. Cointegration among the three (FDI, exchange rate and GDP) is the prime focus of this investigation. Unit root test, Johansen cointegration test, Granger causality, VAR and variance decomposition are adopted to investigate the relation. Key findings include that, variables are not cointegrated. VAR shows that FDI positively affects GDP from 20 periods ahead forecast. It is found that 40% variance in GDP can be explained by exchange rate and on the other hand 5% forecast error variance in exchange rate can be explained by GDP. Further research direction and policy implications are presented at the end.