The FDI-Growth Link in India: An Empirical Analysis and Comparison with APEC

This study re-examines the contentious relationship between Foreign Direct Investment (FDI) and economic growth, addressing the inconsistent findings prevalent in the literature. A dual-pronged approach is employed: (1) a time-series Autoregressive Distributed Lag (ARDL) model to analyze the macroeconomic impacts in India, and (2) a panel regression analysis for APEC member economies. The results reveal a critical temporal divergence. For India, the ARDL model indicates that while FDI inflows and domestic capital (GFCF) significantly boost long-run economic growth, FDI’s contribution becomes significantly negative in the long run. This finding suggests a complex, nonlinear relationship where immediate benefits may obscure long-term challenges. In stark contrast, the panel analysis of APEC economies demonstrates that FDI plays a consistently significant and positive role in promoting economic growth. The divergence between India’s long-run negative impact and the APEC-wide positive trend forms the core implication of this study. It suggests that the benefits of FDI are not automatic and are contingent on national context and policy frameworks. While India has successfully attracted FDI, the results call for a re-evaluation of its inward FDI policies to ensure long-term sustainability and avoid potential adverse effects. The APEC results, conversely, provide a benchmark, implying that effective policy frameworks can harness FDI for sustained growth.