Article

Foreign Institutional Investor (Fii) Flows: Some Indian Perspectives

Authors:
Ranjitkumar Pattnaik
Ranjitkumar Pattnaik
S.N.V. Siva Kumar
S.N.V. Siva Kumar
S.N.V. Siva Kumar
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Abstract

Worldwide there has been a long debate both in academic and policy circles with regard to the Foreign Institutional Investor (FII) flows, mainly due to their volatility and pro-cyclicality, and consequent adverse impact on the monetary and macro-economic management. Contemporaneous with the global debate, the issue has surfaced and resurfaced in India also in tune with the magnitude of the flows both in upswing and downswing. India has seen massive flows and sudden stops and reversals. The present article is an attempt to analyze the underlying issues and put forth some policy options. Indian approach to capital flows, especially, FII flows, has stood the test of time. The Indian authorities, with a combination of sound macroeconomic policies, prudent debt management, exchange rate flexibility, effective management of the capital account, accumulation of appropriate levels of reserves as self-insurance and development of resilient domestic financial markets, have provided a sustainable response to the large and volatile capital flows.

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Macrodeterminants of FDI in India: Cointegration and Causality
Chapter
  • Jun 2023
This chapter attempts to test empirically the potential determinants of FDI in India with the help of cointegration technique developed by Johansen and Juselius (1990) for the period 1971–2013. We test empirically two models. Model 2.1 includes seven variables such as FDI, trade openness, financial deepening, GDP, growth rate, PCY and exchange rate. After confirming the order of integration, we find two cointegrating equations and rejects null hypothesis of no cointegration and shows long-run relationship among variables. Model 2.2 includes only four variables such as FI, GDP growth rate, financial deepening and trade openness. We find two cointegrating equations. In both the models, pairwise Granger causality is detected in the number of variables as hypothesized in the two models. GDP, growth rate, financial deepening and trade openness have been explored as potential determinants to attract more FDI and foreign investment in Indian emerging economy.KeywordsFDICointegrationGrowthDeterminantsCausality
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