EMPIRICAL ANALYSIS OF TRADE RELATED INVESTMENT MEASURES ON FOREIGN DIRECT INVESTMENT IN INDIA

Abhipsa Vagadia; Prof.(Dr.) Sandip Solanki

Volume : IV, Issue : VII, July - 2015

EMPIRICAL ANALYSIS OF TRADE RELATED INVESTMENT MEASURES ON FOREIGN DIRECT INVESTMENT IN INDIA

Abhipsa Vagadia, Prof. Dr. Sandip Solanki

Abstract :

For the last two decades, there has been extensive growth in Foreign Direct Investment (FDI) flows to the developing countries. An increased competition amongst the developing countries to attract FDI, ensuing in higher investment incentives offered by the host governments and removal of restrictions on operations of foreign firms in their countries. WTO has provided Trade Related Investment Measures (TRIMs) for global level investment. FDI is governed by provisions of TRIMs in host country. TRIMs were proposed by the India in the 1995 Uruguay Round as a way to create a better investment environment in India. In this scenario, the question is addressed by this study that how effective is this investment agreements in attracting FDI flows to developing countries like India? To answer this, the present study has considered the impacts of the TRIMs in India by taking time series data for the period 1991-2010. For this, the present paper is divided into three parts : In First one reviews of literature has been studied for relevant variables, the second one examines the linkages of these variable with FDI, whereas, the third part discusses about methodology, model building and data analysis. Using Ordinary Least Square linear equation, the explanatory variables are regressed to test the significance of these variables. The multiple regression analysis has been used and the regression results indicated that Export performance requirement(volume of export), Technology Transfer Requirements (Expenditure on R&D and No of M&A in Manufacturing sectors), Foreign Exchange Balancing Requirements(liquidity position, Exchange Rate) Local content requirements (Number of SSI units in millions), TRIMs Agreement (WTO membership) are significant in explaining FDI inflows in India, whereas, Trade balancing requirements(current A/C balance % GDP, Debt/Export) are significant but have negative relationship in explaining FDI inflows in India.