FDI in India and its economic effects on service industry

Utilising time series data on Foreign Direct Investment (FDI) inflow, exports and outputs in service industry, co-integration, Vector Auto-Regression (VAR) and causality analyses are conducted on the basis of aggregated data that are available for the period 1991-2007. The empirical results indicate that there exist long-run co-integrating relationships between FDI and service exports and outputs in India; whereas FDI inflow appears to have no significant impact on service exports and outputs performance, there is no evidence of long-run causal links between FDI inflow and service exports and outputs in service industry, and there is only a weak long-run causality running from output of services to FDI.