For a developing economy like that of India, FDI inflows play an important role to bridge the gap between domestic savings and investment and maintain a sustainable economic growth.
The inward FDI is argued to have visible impact on the real economy through its effect on important macroeconomic variables.
How does FDI affect economic growth?
Research shows that an increase in FDI leads to higher growth rates in financially developed countries compared to rates observed in financially poor countries. Local conditions, such as the development of financial markets and the educational level of a country, affect the impact of FDI on economic growth.
Does FDI really matter to economic growth in India?
Economic theory suggests that FDI can have a positive effect on the economy, as the output in an economy influences FDI flows. For India, FDI remain small when measured as a proportion of gross domestic product (GDP) or total investment and plays a very small role in the development of our economy.
What is the impact of FDI on Indian economy?
For Indian economy which has tremendous potential, FDI has had a positive impact. FDI inflow supplements domestic capital, as well as technology and skills of existing companies. It also helps to establish new companies. All of these contribute to economic growth of the Indian Economy.
How can foreign direct investment improve the economic growth of a country?
And by encouraging foreign direct investment, governments can create jobs and improve economic growth. For international investors, foreign direct investment plays an extremely important role.
Some key benefits of foreign direct investment include:
- Economic Growth.
- Job Creation & Employment.
- Technology Transfer.