Does Inward FDI Lead to Export Performance in India? An Empirical Investigation

Abstract

This article investigates whether or not inward foreign direct investment (FDI) leads to export performance in India over the time period 1980—2017. We use Augmented Dickey–Fuller and Phillip–Perron unit root test to check the stationarity, and it confirms that all the variables are stationary at first differences I(1). The auto regressive distributed lag (ARDL)-bound testing co-integration approach confirms that there is no valid long-run relationship between considered variables. Results indicate the insignificant negative impacts of FDI on real exports in long run but not in short run. Result of Granger causality test confirms that there is a unidirectional causal relationship existing between the variables where FDI has a Granger cause to export. Results of stability test suggest that there is no structural instability in the residuals of equation of real exports. FDI does not work uniformly in all sectors, and policymakers should understand the difference and identify their sector-wise policies relating with FDI. The law and order should also be maintained, which is the essential part to attract the foreign investors. At this stage, we can also set the direction of future research, that is, sector-wise study should be done on the relationship between FDI and exports.