Journal Press India^®

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A major feature of economic reforms in India since 1991 has been a progressive liberalisation of external capital flows, especially non debt creating ones like Foreign Direct investment (FDI) and Foreign Institutional Investment (FII).This opened a new door for the foreign investors (FIIs) to invest in India due to which a large number of foreign institutional investors flocked towards India. In this paper, we make an effort to study cause and effect relationship between FIIs' inflows and economic growth in India. The study covers the period from 1994 to 2016. The pragmatic relationship between FII inflows and economic growth has been examined by applying Engle- Granger Co-integration test, Granger Causality test and further VAR model. The results of the study have given no backing to the speculation that FII inflows have the capability of impacting the process of economic growth in India. Further, we have also found that economic growth is not a substantial determinant of FII inflows in India.

Keywords

Foreign institutional investment; Gross Domestic Product; Economic growth; Vector Auto Regressive model; Granger causality test

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