Effects of FDI on Capital Account and GDP: Empirical Evidence from India

Abstract

Foreign Direct Investment (FDI) is boomed post reform in India. FDI inflows changed not only the domestic investment but also the trade situation. Then it related to balance of payments tightly. This paper aims to find the link between FDI and its impact on Indian economy. In this paper, data of some variables affecting current account balance and capital & financial account balance from 1997 to 2011 is used to generate some results. I have utilized Granger causality test and impulse response function to analyze effect of FDI to capital and financial accounts and GDP of India. The empirical results indicate that FDI has a negative effect on current account and a positive effect on capital account.