02-06-2012, 10:56 AM
INPUT OUTPUT MODELING OF IMPACT OF FDI ON INDIAN ECONOMIC GROWTH
INPUT OUTPUT MODELING OF.PDF (Size: 80.7 KB / Downloads: 50)
Capital/ investment and human resources are the pivots of development. Short supplies of domestic capital limit the growth of developing countries. Low GDP keeps savings and investment rates low which, in turn, limit growth. Low technological base of production is another factor impinging upon growth of developing countries. FDI mitigates these constraints to growth to some extent. FDI brings capital with foreign technology and modern managerial techniques and organizational structures (Prakash and Balakrishnan, 2005). Besides, FDI and growth, like several other variables, are bi-directionally related. Thus, FDI has both in and out flows, since developing economies like Korea, China and India are also the suppliers of FDI. Foreign Investment Outflows (FIO) depends basically on supply of capital in the home country. Developed rather than developing countries may, therefore, be hypothesized to be the main suppliers of FDI, and hence, FIO. As against this, countries of the third world could be envisaged to be the net recipients of FDI, howsoever high their growth rate and development status may be.
Brief Review of Selected Studies
Several studies have focused on theoretical positive impact of FDI on growth. But there are only few empirical studies of this facet. Both macro and micro studies have generally been conducted to study the relationship between FDI and growth. Micro studies find no positive evidence to support the thesis that FDI positively contributes to growth. Macro studies, have, however, thrown up some evidence to show that FDI positively affects economic growth under certain conditions.
Objectives
The main objective of the study is to estimate total and sector wise output effect of FDI in Indian economy for 2003-2004. The second objective is to estimate inter and intra sector variation of
output effect. The third objective is to decompose total output effect of FDI into output effect due to technology and pure output effect of FDI.
Model
We have, however, preferred input output to econometric modeling, since regression gives only direct impact multipliers irrespective of the degree of sophistication of modeling. IO model will easily capture both direct and indirect output effects of FDI. The I-O modeling will also enable us to impound growth effects of i) change in technology, and ii) domestic investment. The impounding of effect of change of a variable may be achieved by keeping its value constant. So constancy of technology matrix and its inverse will achieve this objective in the study.
Database
Input output tables of India, prepared by CSO, and other public data sources related to industry
wise official statistics have been used. We have used 2003-04 and 1998-99 Leontief inverses of
CSO. We have gathered information about sector wise foreign direct investment in Indian
economy in 2004. Only 41 out of 130 sectors of the economy hosted for FDI. These data have been used as the final demand vector in the models