Financial Deepening, Foreign Direct Investment and Economic Growth: Are They Cointegrated

Rudra P Pradhan

Abstract


The paper explores the long run equilibrium nexus between financial deepening, foreign direct investment (FDI) and economic growth in India during 1970-2007. Using Johansen’s cointegration technique, the paper finds that financial deepening; foreign direct investment and economic growth are cointegrated, indicating the continuation of long run equilibrium relationship between them. The Error Correction Model (ECM) further confirms the presence of bidirectional causality between foreign direct investment and economic growth and a unidirectional causality from financial deepening to foreign direct investment. The paper at the end suggests that India needs well developed financial system in order to bring more foreign direct investment and economic growth in the Indian economy.

Full Text: PDF DOI: 10.5430/ijfr.v1n1p37

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This work is licensed under a Creative Commons Attribution 3.0 License.

International Journal of Financial Research
ISSN 1923-4023(Print) ISSN 1923-4031(Online)

 

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