Foreign direct investment and economic growth in India: An empirical time-series analysis (2000–2019)

Abstract

Foreign Direct Investment (FDI) has played an increasingly important role in shaping the growth trajectory of emerging economies, particularly those undergoing structural transformation and integration with global markets. In the Indian context, sustained policy reforms and gradual liberalization have encouraged foreign capital inflows, making it necessary to examine their contribution to economic performance. This study investigates the relationship between Foreign Direct Investment and economic growth in India using annual time-series data covering the period from 2000 to 2019. The analysis applies an econometric framework based on the Ordinary Least Squares method, where real Gross Domestic Product is used as an indicator of economic growth, while FDI inflows serve as the principal explanatory variable. The model also incorporates key control variables, including domestic investment, trade openness, human capital, and inflation, in order to capture broader macroeconomic influences on growth. The empirical results reveal that FDI exerts a positive and statistically significant effect on economic growth, suggesting that foreign investment contributes to capital formation, productivity improvement, and technological advancement. The findings further indicate that domestic investment and human capital play a complementary role in enhancing the growth impact of foreign capital. These results highlight the importance of maintaining a stable macroeconomic environment and strengthening institutional and human capital foundations to maximize the long-term benefits of foreign investment. The study provides useful insights for policymakers seeking to promote sustainable economic growth through effective integration with global investment flows.