Relationship Between FDI Inflows and Export: The Case of India

Abstract

Capital flows have become a prerequisite for accelerating the pace of growth and development of a developing country, and practically all developing countries have been working hard to attract additional capital flows. Furthermore, these countries have correctly recognized the necessity of entrusting a significant role to the private sector. Capital flows to developing countries began to pick up steam in the early 1980s, and by the end of the decade, there had been a massive rise in the number of capital flows to these countries. Though the Indian government has traditionally welcomed foreign investment with certain constraints, the government’s foreign investment policy has experienced significant changes since independence. The role of trade policy on economic growth has been the focus of considerable academic effort. Openness, namely, the sum of exports and imports to Gross Domestic Product (GDP), has been considered one of the main determinants of economic growth. Export expansion can increase productivity, offering greater economies of scale. Against this background, this study investigates the relationship between Foreign Direct Investment (FDI) and trade for India over the period 2000-2022. The result of regression analysis showed that there is a relationship between the examined variables.