Asymmetric Effects of Foreign Direct Investment on Economic Growth: Fresh Evidence from India Using NARDL Simulation

Abstract

The present article aims to examine the asymmetric effects of foreign direct investment (FDI) on economic growth in India during 1991–2019. Along with FDI, financial development, inflation and trade openness are used as control variables. To check the influence of these variables on economic growth, this study employed the non-linear autoregressive distributed lag (NARDL) model. The results indicate that a positive shock in FDI inflows positively influences India’s economic growth while negative FDI inflows have a negative influence. Also, the Wald test establishes the asymmetric effect of FDI on gross domestic product (GDP) growth both in the short-run and long run. Moreover, financial development and inflation rate significantly reduce the pace of economic growth in both the long run and the short run. However, trade openness boosts economic growth only in the long run. Based on these empirical findings, several policy implications are designed to increase the pace of economic growth.