DYNAMIC REGRESSION APPROACH TO IDENTIFYING THE DETERMINANTS OF INWARD FOREIGN DIRECT INVESTMENT FOR INDIA

One of the remarkable features of globalization in the 1990s for India was the flow of private capital in the form of foreign direct investment (FDI), which is a significant source of development finance that contributed to productivity gains by providing new investments, improved technology, managerial expertise and exports to Indian economy. The study identifies some of the major macroeconomic factors which act as potential determinants of inward FDI. Variables analyzed includes inward FDI, gross domestic product, exchange rate, exports, gross enrolment ratio, urban population, inflation and one period lagged value of inward FDI. Period of study ranges from 1990- 91 to 2013-14. Dynamic Regression Modelling is used in this research to understand the self-reinforcing effects of past values of FDI. Results of the model indicate that urbanization and lagged values of inward FDI are statistically significant in determining inward FDI. The results are statistically significant. It indicates that towns and cities are creating a landmark not only for overall development but also acts as a tool in bringing in more capital from abroad through inward FDI. Also it is proved that, the mechanism of inward FDI is taking into account not only the current values but also the past inflows of FDI which together influences future potential investments JEL Classification Code: F17, F23, F43, F63