Title: Interaction among foreign direct investment, economic growth and foreign trade: evidence from India and China

Authors: Suresh K. Chadha; Bulbul Singh; Vivek S. Natarajan

Addresses: University Business School, Panjab University, Sector 14, Chandigarh, 161014, India ' Sri Aurobindo College of Commerce and Management, Village Jhande, P.O. Threeke, Ferozepur Road, Ludhiana, 141021, India ' Jerry and Sheila Reese Faculty Scholar in Business, Department of Management and Marketing, Lamar University, P.O. Box 10025, Beaumont, Texas-77710, USA

Abstract: During the past decade, the subject of FDI and economic growth has invited tremendous academic interest but there has been controversy over its causal relationship. This study investigates the multivariate causal relationship between FDI, economic growth and foreign trade in two of the fastest growing economies of the world, India and China. The vector error correction model was applied to examine the stability and interrelationships between the variables. Both countries have presented converse results as far as the causal relationship between FDI and GDP is concerned. In India, GDP Granger causes FDI; in China, FDI Granger causes GDP.

Keywords: foreign direct investment; FDI; economic growth; foreign trade; vector error correction; Granger causality; emerging economies; India; China.

DOI: 10.1504/IJPMB.2014.060405

International Journal of Process Management and Benchmarking, 2014 Vol.4 No.2, pp.145 - 166

Published online: 13 Apr 2014 *

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