Long-Term Relationship between FDI and Infrastructure Development in India – An Empirical Investigation Kaur Tushinder Preet, Research Fellow, Dr. Kaur Kuldip, Professor Punjab School of Economics, Guru Nanak Dev University, Amritsar, Punjab, (India), 143005 JEL Classification: E22, H54, P45 Online published on 5 September, 2013. Abstract This paper aims to analyse the relationship between Foreign Direct Investment (FDI) inflow and Infrastructure for India, which has been explored by utilizing the technique of cointegration and VECM Granger Causality Test (Wald Test). The resulting cointegrating vector indicates that there exists a long run relationship between FDI, Gross Capital Formation and Infrastructure index. The results indicate that there is long run causal relationship between FDI and infrastructural development which has been found to be positive and statistically significant. FDI can help to fill the investment gap and to develop the infrastructure in India. The results also reveal that by providing the better infrastructural facilities in terms of roads, railways, telephones, ports, power, etc., India can achieve high investment inflows, high levels of gross capital formation and thereby significant economic growth rate. The short run causality between FDI, gross capital formation and infrastructure has been carried out which reveals that FDI has ambiguous and uncertain impact on domestic investment. Top Keywords Foreign Direct Investment, Gross Capital Formation, Infrastructure. Top |