A Causal Relationship between Economic Growth, FDI, and Trade Openness in India: A Linear and Non-linear Approach
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Author: Kundan Kumar, Sonia Aggarwal and Rajendra Narayan Paramanik
Author Address: Department of Economics, Bennett University, Greater Noida-201310 (Uttar Pradesh)
Keywords: Granger causality, non-linearity, policy.
JEL Codes: C10, C65, E60.
Abstract
The study examined the causal nexus between India's trade openness, FDI and economic growth from 1970 to 2021. This study used the time series Linear and the Non-linear Causal Test to analyze the causal nexus among the variables. The findings suggested a bidirectional causality between each pair of variables. Conversely, the Non-linear Causality Test results revealed bidirectional non-linear causality between trade openness and economic growth and between FDI and economic development. The findings suggested that policymakers should adopt a balanced approach to promote economic development in India, where policies to enhance trade openness should consider their impact on the FDI. FDI strategies should likewise account for their effect on trade openness. Investment in infrastructure and human capital can also amplify this nexus.
Description
Indian J Econ Dev, 2024, 20(3), 423-430
https://doi.org/10.35716/IJED-23247