Impact of Foreign Direct Investment on Economic Growth

Foreign direct investment plays an important part in developing countries’ economic development. Improving the international economic transactions has become more critical than trade. Non-debt generating capital inflow from foreign investors encourages enhanced efficiency, technology development, and infrastructure strengthening and job creation opportunities. Therefore every economy seeks to attract FDI by establishing a favorable environment for foreign investment and providing the foreign investors with facilities and inducements. Increasing socio-economic determinants in an economy affect FDI. In this paper an attempt has made to study the impact of FDI on Gross domestic product, gross domestic saving, per capita income and Foreign exchange rate by using bivariate log-log regression.


Introduction
With over one billion inhabitants, India is one of the world's largest economies in terms of purchasing power and consumer spending. (FDI) plays an important role in encouraging exports and in transforming the Indian economy. Foreign Direct Investment (FDI) is well thought out as an imperative means of encouraging a multitude of countries to export. By increasing productivity and productive capacity, it is argued that exports are exercised by the FDI and technology transfer is also important for the upgrading of local workforce training. The Indian government has taken some important measures and the FDI policy reforms are being made to ease the businesses and to prepare the FDI in the years ahead. Today, FDI has become a tool of international economic integration. Yet globalization, before people obtain a clear understanding of how globalization impacts human welfare, is still debatable. Since economic growth has become an international measure of country welfare, people need to be better able to handle the effects of globalization on economic growth. Globalization encompasses a wide range of economic activities, including international trade, international migration, and investment. An accurate assessment of whether globalization is good for economic growth requires that we look at the growth effects of all globalization's components. Not all of these components have been extensively studied, and empirical evidence indicates that each of the globalizing practices can have very different effects on development.
Owing to a lack of resources and technology transfer, international investment is a strategic move for the country and is commonly well recognized as Foreign Direct Investment (FDI). Many policy-makers and scholars claim that FDI can have major positive impacts on the development initiative of a host nation. In addition to the direct capital support it offers, FDI can be a source of useful technologies and know-how while cultivating partnerships with local businesses that can help improve an economy. Industrialized and developing countries have offered incentives based on these claims to promote foreign direct investment in their economies. Fueling this debate is that at both the micro and macro levels, empirical evidence for FDI producing positive spillovers for host countries is unclear. In this paper an attempt has been made to study the impact of FDI inflows in India on macro economic variables.

Review of Literature
Phiyal Kumar Ram and Sunuwar Seema (2018)1The FDI 's role in economic growth has been widely studied in terms of growing employment opportunities and overall economic well-being, especially in developing countries such as Nepal. The entire outcome of the inferential analysis interprets that manufacturing, tourism and agriculture FDI has a very positive and important effect on GDP over the period from 2007 to 2016. Mishra.A and Aggarwal Amba (2017)2 analyses the effect of Foreign Direct Investment (FDI) in five developed world countries that formed the BRICS organisation. This study aims to expose the effect of FDI in the BRICS countries (Brazil, Russia, India, China and South Africa) on economic growth and employment. The data used for the duration (2000 through 2015). For this study correlation analysis was applied to examine the types of relationships that exist between FDI and the BRICS country's economic growth and unemployment rise. The analysis shows that FDI does not have any major positive effect on growth rate in Brazil and China Rest BRICS nations FDI.
Rahman UR Zia (2014)3Studies the effect FDI has on Pakistan's economic development. Multiple regression technique is used which shows that Pakistan's GDP is positively affected by FDI when FDI inflows increase, and there is a negative relationship between GDP and CPI.
Akhtar Gulshan (2013)4 studies the relationship between FDI and pre-and post-reform era economic growth. FDI serves as a catalyst for domestic industrial development and is considered a major engine for economic growth. He suggests that the emphasis should be not only on the amount of FDI inflow, but also on the positive externalities that can be gained from it, like technological growth.
Teli .R.B. (2013)5 found that the correlation between FDI inflows and other relevant economic indicators such as GDP, Trade, etc. is very strong.
The Government of India should take cautionary measures thus allowing for various industries, such as multi-brand retailing in India. Regulatory policies should be made favourable and policy makers should avoid uncertainties for boost line FDI in India and ultimately to raise GDP, Trade and Foreign reserves of the country.

Objectives:
1. To study the various determinants affecting FDI.
2. To study the impact of FDI on Gross Domestic Product, Gross Domestic Savings, Per capita Income and Foreign Exchange rate.
Collection of Material The analysis was conducted using secondary data. The investigator obtained data that had been written from different sources, viz. RBI bulletins, World Investment Report (UNCTAD), World Bank, Handbook on Indian Economic Statistics (RBI), Department of Trade and Industrial Development, etc. In addition to these various journals, this research paper also consulted magazines, articles, and books.
Research Methodology An attempt was made in this paper to investigate the impact of FDI inflows from 1991 to 2019 on major economic factors in an economy such as GDP, GDS, PCY, and FER. Using the log-log bivariate regression model, a descriptive analytical method was used in this analysis to identify the effect of FDI inflows in India on those variables.Analysis of Data. Table 2 shows the results of regressions to study the impact of FDI on major economic variables. The result reveals that there is a positive relation between Gross domestic product and foreign direct investment in India. It also shows the elasticity of GDP to FDI is 0.42, which is found statistically significant. The impact of FDI on GDP is positive and significant. FDI in India is also showing positive and significant relation with gross domestic savings in Indian economy. A one percent change in FDI inflow could lead to 0.48% change in gross domestic product. There is also a positive and significant relation between FDI and per capita income and foreign exchange rates. With one percent increase in FDI could lead to 34% and 69% change in PCY and FER, respectively.

Conclusions
From the empirical analysis, it is found that FDI has positive and significant impact on major economic variables. As FDI will increase in the economy it could increase the gross domestic product by contributing more in production activities and when production will increase it would help in increasing income and savings of individuals. With the rise in National income per capita income will improve. FDI increases the demand for currency and hence helps in appreciation of domestic currency or foreign exchange rates. So by theoretical as well as empirical analysis it can be concluded that FDI inflows affect all these economic variables.