Table of Contents
LITERATURE REVIEW 3
FOREIGN DIRECT INVESTMENT 5
MAJOR IMPACTS OF FDI 8
TREND IN EXPORT IN INDIA 9
MAJOR FACTORS THAT AFFECT EXPORTS 10
EXPORT TRENDS AND THE WAY AHEAD 12
IMPACT OF FDI ON EXPORT 12
HOW FDI DRIVES EXPORT 12
IMPACT ON SERVICE INDUSTRY 13
PERIOD OF STUDY 14
SOURCES OF DATA 14
Foreign direct investment is an important part of the economy of every country.It helps expedite the globalisation process. Firms across the world interact with other firms situated in ...view middle of the document...
We aim to establish a relationship between FDI and exports and also to show that there existsa positive relationship between the two.
Following the introduction is the brief description of FDI and its growth in India, factors affecting FDI, trends and the impact of FDI on GDP. Thereafter we discuss in brief the Exports, factors influencing exports and the trends in exports. Then we come to the crux of our discussion i.e. to establish a relationship between FDI and Exports. A simple linear regression model is developed and the result interpreted. The paper ends with concluding remarks.
A number of research Papers have been written on the topic on Foreign Direct Investment (FDI) in India. In his paper on the impact of Foreign Direct Investment on India (Kamath, 2008) G Bharathi Kamath estimates and analyses the impact of Foreign Direct Investment (FDI) on Gross Domestic Product (GDP) and exports in India for the post-liberalization period (1991-2005). The data collected from sources such as World Investment Report (WIR) and Secretariat for Industrial Assistance (SIA)establishes the relationship between the FDI inflows and exports and GDP in the Indian economy.
The simple regression technique was used to capture the impact of FDI on exports, imports andGDP. Analysis showed that the coefficient of determination (R2) between the FDI and exports is very high and also significant. The interpretation can be that on an average, US$1 million inflow ofFDI in the economy results in around US$7.8 million exports in the economy. The variation in exports due to changes in FDI can be explained to the extent of 72%.The coefficient explaining variation in exports is significant indicating that the FDI has in fact promoted exportsduring the period of study.
A S Shiralashetti and S S Hugar (2009) analysed the trends in exports with respect to Foreign Direct Investmentand Economic Developmentof India: A Diagnostic Study.The study found that Exports from India have increased from Rs. 32,558 crore in 1990-91 to Rs. 361,879cr in 2004-05. But there has been a lack of consistency in the growth rate ofexports even though exports have shown an increasing trend.
A study on the role of FDI in export growth in India (Kishor Sharma, 2000), states that several factorsappear to have contributed to the phenomenon of rising exports including foreign direct investment (FDI)which has been rising consistently especially from the early 1990s.
The role of FDI in export promotionin developing countries remains controversial and depends crucially on the motive forsuch investment. If the motive behind FDI is to capture domestic marketit may not contribute to export growth. On the other hand, if the motiveis to tap export markets by taking advantage of the country's comparative advantage, thenFDI may contribute to export growth. Thus,whether FDI contributes to export growth ornot depends on the nature of the policy regime. Therefore, an outwardorientedregime...