Study of Linkages Between Outward Foreign Direct Investment (OFDI) and Domestic Economic Growth: an Indian Perspective

The inwards and outward FDI movement plays an important role in the economic development and growth of any economy. The OFDI have its impact on the home economy based on scale effect, competition effect and knowledge effect. It helps other domestic companies to expand their business and scale of firms by giving them technological and trade benefits. OFDI help the companies to improve efficiency and upgrade production processes. This paper is focusing on the Outward Foreign Direct investment (OFDI) and its linkage with the domestic growth in Indian perspective. It takes in to account various direct and indirect benefits which may spillover to domestic economy. This paper is examining the question whether OFDI is linked to production or it is regarded as a withdrawal of domestic capital. Further it has positive or negative impact on the GDP of the country. On the above question several studies have been conducted in developed countries but not in Indian context. So, this paper is attempting to answer the above question in Indian context. The research methodology for this paper is secondary in nature and the data collected for this paper is taken from the RBI sources. We have taken a period of 10 years from 2007 to 2016. For this paper, we used Augmented Dickey– Fuller (ADF) for testing the stationarity, Eigen value test, Trace test. Further we used the regression analysis in order to check the relationship of GDP and Outward Foreign Direct investment (OFDI). The results of the data analysis explain that there is no significant relationship between the OFDI and domestic economic growth in India. However, the results in case of some firms may not be the same.