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This is a Quantitative Study study.

September 23, 2025

An Empirical Analysis of the Relationship between FDI Inflow and Outflow with the Economic Growth of India

Key Points

Positive FDI inflow impacts GDP growth, enhancing economic stability.
Negative FDI outflows suggest potential drawbacks for domestic capital investment.
Utilization of vector error correction model highlights short-term and long-term economic dynamics.
Findings emphasize the importance of trade openness and infrastructure development for sustained growth.

Abstract

This study extensively analyses the relationship between the inflow and outflow of foreign direct investment (FDI) and their impact on India’s economic growth. Utilising secondary data spanning the period 2000 to 2024, the research employs the vector error correction model to rigorously investigate the short-term and long-term dynamics among the relevant economic variables. The findings of the analysis reveal a complex and multifaceted interplay between FDI flows, trade openness, exchange rates, market size, infrastructure development and the overarching economic growth of India. Specifically, the results indicate that FDI inflow exerts a positive influence on India’s gross domestic product (GDP), suggesting its role in stimulating economic expansion. Conversely, the study also finds that FDI outflow has a negative effect on GDP, implying potential implications for domestic capital and investment. JEL Codes: C32, F21, F43, F62, O53

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