Factors Influencing FDI in India s Service Sector

Factors Influencing FDI in India’s Service Sector

This research article primarily investigates the factors that influence the inflow of Foreign Direct Investment (FDI) in Indian service sector from 1991 to 2021 by considering seven independent variables namely, skilled labour, inflow of FDI in manufacturing sector, exchange rate, external debt, rate of inflation, FDI openness and GDP growth. The results of regression analysis demonstrates that amount of FDI inflow in manufacturing sector, GDP growth rate and economic openness on FDI within service sector are the key drivers in Influencing the inflow of FDI in service sector. Hence, this study suggests that the policymakers aiming to attract more FDI in the service sector should prioritize promoting manufacturing investments, improving overall growth rate and also focus in implementing transparent policies to instil confidence, among investors regarding India’s economy.

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Determinants of foreign direct investment in India: an empirical analysis

Foreign direct investment (FDI) inflows to the developing countries have increased with a greater pace in the 1990s accounting for about 46.1 % of global FDI inflows in the year 2010. Similar trends have also been visualized in India where FDI has expanded rapidly following the economic reforms initiated in the early 1990s. These were directed towards increased liberalization, privatization and deregulation of the industrial sector, integrating the economy with that of world economy by reducing trade barriers and adapting favourable policy framework towards expansion of foreign investment in the country. This has made Indian economy a favourable destination for foreign investors. The present study explores the determinants of FDI that influence the inflows of FDI into India. Explanatory variables used in the study are gross domestic product (GDP), foreign exchange reserves (RES), long-term debt (LTD), inflation (INF), exchange rate (EXCH) and openness (OP). Empirical analysis concludes that the variables OP, Reserves, GDP and LTD have found to have positive impact on FDI, while negative impacts of INF and EXCH on FDI have been noticed.

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Authors and Affiliations

1. Department of Commerce and Business Management, Guru Nanak Dev University, Amritsar, 143005, India Mandeep Kaur
2. P.G. Department of Commerce, K.L.S.D. College, Ludhiana, India Renu Sharma

1. Mandeep Kaur

https://jaa.kbsaa.org/index.php/j/article/view/36https://link.springer.com/article/10.1007/s40622-013-0010-4