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FDI & ITS IMPACTS ON ECONOMIC GROWTH: AN EMPIRICAL STUDY ON INDIAGroup-15 Mohd Ibraheem, Abhishek Sethi, Abhishek Jain, Deepankar Shri Gyan, AnjulAggarwal

Introduction

After 1990 Economic Liberalisation in India¶s GDP has grown very rapidly. In this paper weattempt to analyse the effect of certain variables that are the determinants of GDP in order tounderstand effect of FDI on economic growth of the country. We include the four variables inthe model Gross Domestic Investment (GDI), Foreign Direct Investment (FDI), Human Capital(HC), Labour Force (LF) on Gross Domestic Product (GDP).

FDI is defined as:

y IMF defines FDI as ³The acquisition of at least ten per cent of the ordinary shares or voting power in a public or private enterprise by non-resident investors. Directinvestment involves a lasting interest in the management of an enterprise and includesreinvestment of profits´.

Va ri able

According to Keshava (2008) to assess the effect of FDI on growth, uses four variables of FDI,

Gross Domestic Investment (GDI), Foreign Direct Investment (FDI), Human Capital (HC), andLabour Force (LF) to study the effect on Gross Domestic Product (GDP).

The GDP is taken as dependent variable and Gross Domestic Investment (GDI), Foreign DirectInvestment (FDI), Human Capital (HC), and Labour Force (LF) are taken as independentvariable.

Da ta Sourc e

For this study we are going to use secondary source of data from various databases like the publications of Government of India, Reserve Bank of India, Ministry of Industry andCommerce, World Bank, and IMF, UNCTAD, Centre for Monitoring Indian Economy (CMIE)other than books, Journals and Periodicals. The reference period of this study relates from 2000to 2010.

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M e thodo logy

Relevant statistical techniques, especially regression, will be used to study the dependency of these independent factors on GDP.

To find out the relationship between the factors and GDP as follow

Y= A + X1 + X2 + X3 + X4

WhereY = Gross Domestic Product in yearµt¶X1 = Gross Domestic Investment in year¶t-1'X2 = Foreign Direct Investment in yearµt-1'X3 = Human Capital in the yearµt-1'

X4 = Labour Force in the year't-1'

Further A is the total factor productivity that explains output growth i.e. not accounted by all thefour factors listed, , , , are the respective elasticity coefficient of the concerned variables asusual. This equation is transformed into linear one to facilitate to use of ordinary least squaremethod by taking logarithmic transformation,

R efe r e nc es

Keshava, Dr. S.R. R. (2008), The Effect of FDI on India and Chinese Economy: A Comparative Analysis . Second Singapore International Conference on Finance 2008. Available at SSRN:http://ssrn.com/abstract=1089964

Agrawal, G. & Khan, M. A. (2011). Impact of FDI on GDP: A Comparative Study of China and India. International Journal of Business & Management , 6(10), 71-79.