chapter  6
24 Pages

Causality Between Trade, Foreign Direct Investment and Economic Growth Under the Structural Adjustment Programme in India: An Application of the Toda Yamomoto Test


The welfare of the nationals of a country depends largely upon sustainable growth with some level of equity. In this context, globalisation offers unprecedented opportunities for developing countries to achieve faster economic growth through liberalised trade policies and foreign direct investment (FDI) infl ows. During the 1970s, international trade grew more rapidly than the FDI and there was considerable progress in trade reforms in most developing countries, generally moving from an import substitution strategy to an export promotion strategy, thus making international trade the most important international economic activity. This situation changed dramatically during the 1980s, when world FDI fl ows started to increase sharply. During this period, the world FDI increased in importance by transferring technologies, establishing markets and procuring networks for effi cient production and sales internationally (Urata, 1998). Generally speaking, exports, imports and inward FDIs constitute sources of new ideas, new goods, new domestic competition, and technology transfer from advanced countries.