Journal Press India^®

Author Details ( * ) denotes Corresponding author

Foreign institutional investment (FII) and foreign direct investment (FDI) play a vital role in the economic development of a country as these capital flows bridge the gap between the domestic savings and the amount required for achieving the targeted capital formation. This paper tries to study how these capital flows are helping India in enhancing the economic activities. It attempts to confirm the long-run and short-run relationship among the foreign direct investment, foreign institutional investments and Index of Industrial Production (IIP) in India during April, 2012 to March, 2020. Johansen cointegration test is applied to confirm the presence of long-run equilibrium and Vector Error Correction Model is applied to study the long-run and short-run properties of the variables. Finally, we have applied Impulse Response Function to understand the dynamic behaviour of the variables in the model.. It is found that the three variables- FDI, FII and IIP are cointegrated in the long-run. However, there is no causality running from FDI and FII to IIP as per the results of VECM Model.

Keywords

Foreign portfolio investment; Foreign direct investments; Index of Industrial Production; Economic development

1. Acha, I., & Essien, J. M. (2018). The economic growth imperative of foreign portfolio investment for Nigeria. Noble International Journal of Economics and Financial Research, 03(06), 71–77.
2. Agarwal, R. N. (1997). Foreign portfolio investment in some developing countries: A study of determinants and macroeconomic impact. Indian Economic Review, 32(2), 217–229. Retrieved from https://in.booksc.eu/book/22347198/f0fd20.
3. Ahmad, F., Draz, M. U., & Yang, S. (2015). Determinants of foreign portfolio inflows: Analysis and implications for China. Asian Journal of Finance & Accounting, 7(2), 66-77. Retrieved from https://doi.org/10.5296/ajfa.v7i2.8165.
4. Al-Smadi, M. O. (2018). Determinants of foreign portfolio investment: The case of Jordan. Investment Management and Financial Innovations, 15(1), 328–336. Retrieved from https://doi.org/10.21511/imfi.15(1).2018.27.
5. Atobrah, R. (2015). Determinants of foreign portfolio investment: Evidence from Sub-Saharan Africa (Issue 10251657). Retrieved from http://weekly.cnbnews.com/news/article.html?no=124000.
6. Chandra, A. (2017). Cause and effect between FII trading behaviour and stock market returns. Journal of Indian Business Research, 31(1), 110–124. Retrieved from http://www.emeraldinsight.com/doi/10.1108/JHOM-09-2016-0165.
7. Garg, R., & Dua, P. (2014). Foreign portfolio investment flows to India: Determinants and analysis. World Development, 59, 16–28. Retrieved from https://doi.org/10.1016/j.worlddev.2014.01.030.
8. Haider, M. A. (2016). A cross-country comparison of factors affecting foreign portfolio investment in emerging economies: In the case of Bangladesh, China, India, and Pakistan. Journal of Management and Sustainability, 6(4), 79-87. Retrieved from https://doi.org/10.5539/jms.v6n4p79.
9. Lo Duca, M. (2012). Modelling the time varying determinants of portfolio flows to emerging markets. Retrieved from https://doi.org/10.2139/ssrn.1945760.
10. Menani, S. (2013). FDI and FII as drivers of growth for Indian economy : A comparison. International Journal of Innovative Research & Development, 2(13), 209–216.
11. Onuorah, A. C. C. (2013). The impact of macroeconomic indicators on stock prices in Nigeria. European Journal of Business and Management, 5(7), 81–90. Retrieved from https://doi.org/10.5897/AJBM10.1480.
12. Orgun, B. O., & Pala, A. (2015). The effect of macro economic variables on foreign portfolio investments: An implication for Turkey. Pressacademia, 4(1), 108–108. Retrieved from https://doi.org/10.17261/pressacademia.201519962.
13. Rai, K., & Bhanumurthy, N. R. (2004). Determinants of foreign institutional investment in India: The role of return, risk, and inflation. Developing Economies, 42(4), 479–493. Retrieved from https://doi.org/10.1111/j.1746-1049.2004.tb00246.x.
14. Singh, A., & Mohan, A. (2019). Modeling the impact of foreign equity, foreign debt and FDI on Indian economic growth through VECM approach. International Journal of Accounting and Financial Reporting, 9(2), 273-286. Retrieved from https://doi.org/10.5296/ijafr.v9i2.14737.
15. Tripathi, N. (2017). FIIs investment and economic growth: A case study of Indian economy. FOCUS: Journal of International Business, 4(01), 83–94. Retrieved from https://doi.org/10.17492/focus.v4i01.9537.
16. Waqas, Y., Hashmi, S. H., & Nazir, M. I. (2015). Macroeconomic factors and foreign portfolio investment volatility: A case of South Asian countries. Future Business Journal, 1(1–2), 65–74. Retrieved from  https://doi.org/10.1016/j.fbj.2015.11.002.