Abstract:
Purpose – This paper aims to examine the dynamics between trade openness, foreign direct investment
(FDI) and economic growth in India over the period 1979 to 2017. This study further considers the role of pre
and post-economic reforms in the analysis of these dynamics.
Design/methodology/approach – The authors apply the autoregressive distributed lag model to
investigate the possible long-run associations among the variables. Zivot-Andrew unit root test was applied
to detect the structural breaks present in the data series. Toda-Yamamoto causality approach has been
applied to examine the direction of causality among the variables.
Findings – Findings show that trade openness exerts a negative impact on economic growth in the longrun. Although FDI inflow promotes economic growth in the long-run, FDI inflow does not seem to affect
growth in the short-run. As far as causality analysis is concerned, findings confirm a unidirectional causality
is flowing from FDI inflow and labour force to per capita gross domestic product growth in India.
Practical implications – The negative impact of trade openness on growth suggests that policymakers
should implement more export-oriented policies to boost economic growth in the long-run. The ratio of
exports to the total volume of trade has not increased satisfactorily over the years. Additionally, appropriate
policies should aim at extracting the benefits of FDI inflow in the long-run.
Originality/value – Although several theoretical and empirical literature has investigated the nexus
between FDI (or trade) and growth, this study, as a fresh attempt, investigates the long
