Impact of Foreign Direct Investment on GDP Growth Rate in India: Analysis of the New Millennium

  • Pooja GuptaEmail author
  • Vikku Aggarwal
  • Karan Champaneri
  • Kritika Narayan


Foreign direct investment (FDI) is described as an investment into another country by an organization with the idea of production of a good or marketing of a product in the country of investment. Besides being a pivotal source of non-debt capital inflow for the host country, it also commits transfer of technology, skill and know-how from one country to another. It has essentially been contemplated as crucial for the integrity of global economies ensuring deeper and enduring ties between nations. This chapter aims to look at the impact of FDI on the growth rate in the Indian economy. The growth rate of the economy is measured as the growth rate in GDP. The time period of the study is the new millennium, that is, from 2001 onward till early 2018. The time period has been chosen such as to study the impact of FDI on the growth rate of India in the pre-financial crisis period (2002–2007), the financial crisis years (2008–2012) and the post-financial crisis period (2013–2018). This delineation of the time period helps in understanding the impact in a better way.


FDI GDP Growth rate India Crisis 


  1. Agarwal, J. P. (1980). Determinants of foreign direct investment: A survey. Weltwirtschaftliches Archiv, 116(4), 739–773.CrossRefGoogle Scholar
  2. Alfaro, L., Chanda, A., Kalemli-Ozcan, S., & Sayek, S. (2004). FDI and economic growth: The role of local financial markets. Journal of International Economics, 64(1), 89–112.CrossRefGoogle Scholar
  3. Arrow, K. J. (1962). The economic implications of learning by doing. The Review of Economic Studies, 29(3), 155–173.CrossRefGoogle Scholar
  4. Balassa, B. (1985). Exports, policy choices, and economic growth in developing countries after the 1973 oil shock. Journal of Development Economics, 18(1), 23–35.CrossRefGoogle Scholar
  5. Balasubramanyam, V. N., Salisu, M., & Sapsford, D. (1996). Foreign direct investment and growth in EP and IS countries. The Economic Journal, 106, 92–105.CrossRefGoogle Scholar
  6. Bengoa, M., & Sanchez-Robles, B. (2003). Foreign direct investment, economic freedom and growth: New evidence from Latin America. European Journal of Political Economy, 19(3), 529–545.CrossRefGoogle Scholar
  7. Blomstrom, M., Lipsey, R. E., & Zejan, M. (1994). What explains the growth of developing countries? In Convergence of productivity: Cross-national studies and historical evidence (pp. 243–259). New York: Oxford University Press.Google Scholar
  8. Borensztein, E., De Gregorio, J., & Lee, J. W. (1998). How does foreign direct investment affect economic growth? Journal of International Economics, 45(1), 115–135.CrossRefGoogle Scholar
  9. Boyd, J. H., & Smith, B. D. (1992). Intermediation and the equilibrium allocation of investment capital: Implications for economic development. Journal of Monetary Economics, 30(3), 409–432.CrossRefGoogle Scholar
  10. Carkovic, M., & Levine, R. (2005). Does foreign direct investment accelerate economic growth? In Does foreign direct investment promote development (p. 195). Washington, DC: Peterson Institute for International Economics.Google Scholar
  11. De Mello Jr., L. R. (1997). Foreign direct investment in developing countries and growth: A selective survey. The Journal of Development Studies, 34(1), 1–34.CrossRefGoogle Scholar
  12. De Mello, L. R. (1999). Foreign direct investment-led growth: Evidence from time series and panel data. Oxford Economic Papers, 51(1), 133–151.CrossRefGoogle Scholar
  13. Dickey, D. A., & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American statistical association, 74(366a), 427–431.CrossRefGoogle Scholar
  14. Dunning, J. H. (1999). A rose by any other name? FDI theory in retrospect and prospect. Reading, UK/New Brunswick: University of Reading/Rutgers University.Google Scholar
  15. Dunning, J. H. (2002). Global capitalism, FDI and competitiveness (Vol. 2). Cheltenham: Edward Elgar Publishing.CrossRefGoogle Scholar
  16. Findlay, R. (1978). Relative backwardness, direct foreign investment, and the transfer of technology: A simple dynamic model. The Quarterly Journal of Economics, 92(1), 1–16.CrossRefGoogle Scholar
  17. Frankel, J. A., & Romer, D. H. (1999). Does trade cause growth? American Economic Review, 89(3), 379–399.CrossRefGoogle Scholar
  18. Grossman, G. M., & Helpman, E. (1991). Trade, knowledge spillovers, and growth. European Economic Review, 35(2–3), 517–526.Google Scholar
  19. Harrison, A. (1994). Multinationals in economic development: The benefits of FDI. MPRA Paper No. 36270.Google Scholar
  20. He, Q., Sun, M., & Zou, H. F. (2013). Financial deregulation, absorptive capability, technology diffusion and growth: Evidence from Chinese panel data. Journal of Applied Economics, 16(2), 275–302.CrossRefGoogle Scholar
  21. Hermes, N., & Lensink, R. (2003). Foreign direct investment, financial development and economic growth. The Journal of Development Studies, 40(1), 142–163.CrossRefGoogle Scholar
  22. Herzer, D. (2008). The long-run relationship between outward FDI and domestic output: Evidence from panel data. Economics Letters, 100(1), 146–149.CrossRefGoogle Scholar
  23. Iamsiraroj, S. (2016). The foreign direct investment–economic growth nexus. International Review of Economics & Finance, 42, 116–133.CrossRefGoogle Scholar
  24. Jayaraman, T. K., Choong, C. K., & Ng, C. F. (2017). Foreign direct investment and growth of India: Does financial sector development help in improving absorptive capacity? International Journal of Business & Society, 18(1), 171–188.CrossRefGoogle Scholar
  25. Lim, M. E. G. (2001). Determinants of, and the relation between, foreign direct investment and growth: A summary of the recent literature. (No. 1–175). Washington, DC: International Monetary Fund.Google Scholar
  26. Lipsey, R. E. (2004). Home-and host-country effects of foreign direct investment. In Challenges to globalization: Analyzing the economics (pp. 333–382). Chicago: University of Chicago Press.CrossRefGoogle Scholar
  27. Lucas Jr., R. E. (1988). On the mechanics of economic development. Journal of Monetary Economics, 22(1), 3–42.CrossRefGoogle Scholar
  28. Meschi, E. (2006, March). FDI and growth in MENA countries: An empirical analysis. The fifth international conference of the Middle East economic association, Sousse (pp. 10–12).Google Scholar
  29. Nair-Reichert, U., & Weinhold, D. (2001). Causality tests for cross-country panels: A new look at FDI and economic growth in developing countries. Oxford Bulletin of Economics and Statistics, 63(2), 153–171.CrossRefGoogle Scholar
  30. Newbold, P., & Granger, C. W. (1974). Experience with forecasting univariate time series and the combination of forecasts. Journal of the Royal Statistical Society: Series A (General), 137(2), 131–146.CrossRefGoogle Scholar
  31. Omri, A., & Sassi-Tmar, A. (2015). Linking FDI inflows to economic growth in North African countries. Journal of the Knowledge Economy, 6(1), 90–104.CrossRefGoogle Scholar
  32. Pegkas, P. (2015). The impact of FDI on economic growth in Eurozone countries. The Journal of Economic Asymmetries, 12(2), 124–132.CrossRefGoogle Scholar
  33. Schneider, F., & Frey, B. S. (1985). Economic and political determinants of foreign direct investment. World Development, 13(2), 161–175.CrossRefGoogle Scholar
  34. Shell, K. (1966). Toward a theory of inventive activity and capital accumulation. The American Economic Review, 56(1/2), 62–68.Google Scholar
  35. Solow, R. M. (1956). A contribution to the theory of economic growth. The Quarterly Journal of Economics, 70(1), 65–94.CrossRefGoogle Scholar
  36. Solow, R. M. (1957). Technical change and the aggregate production function. The Review of Economics and Statistics, 39(3), 312–320.CrossRefGoogle Scholar
  37. Stamatiou, P., & Dritsakis, N. (2013, June). A causal relationship between exports, foreign direct investment and economic growth for five European countries. A panel data approach. Twelfth annual EEFS conference, Berlin, Germany.Google Scholar
  38. Tintin, C. (2012). Does foreign direct investment spur economic growth and development? A comparative study (pp. 1–53). Brussels, WP: Institute for European Studies, Free University of Brussels.Google Scholar
  39. Wang, J. Y., & Blomstrom, M. (1992). Foreign investment and technology transfer: A simple model. European Economic Review, 36(1), 137–155.CrossRefGoogle Scholar
  40. Wheeler, D., & Mody, A. (1992). International investment location decisions: The case of US firms. Journal of International Economics, 33(1-2), 57–76.CrossRefGoogle Scholar
  41. Yao, S. (2006). On economic growth, FDI and exports in China. Applied Economics, 38(3), 339–351. Retrieved from Scholar

Copyright information

© The Author(s) 2020

Authors and Affiliations

  • Pooja Gupta
    • 1
    Email author
  • Vikku Aggarwal
    • 1
  • Karan Champaneri
    • 1
  • Kritika Narayan
    • 1
  1. 1.Symbiosis Institute of Business ManagementBengaluruIndia

Personalised recommendations