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Purpose The purpose of this paper is to examine the impact of female human capital on economic growth in the Indian economy during 1970-2014.Design/methodology/approach The paper employs Ng-Perron unit root test to check the order of integration of the variables. The study also used ARDL-bounds testing approach and the unrestricted error-correction model to investigate co-integration in the long run and short run; Granger’s causality test to investigate the direction of the causality; and variance decomposition test to capture the influence of each variable on economic growth.Findings The study constructed a composite index for both male and female human capitals by taking education and health as a proxy for human capital. The empirical findings reveal that female human capital is significant and positively related to economic growth in both short run and long run, while male human capital is positive but insignificant to the economic growth; same is the case for physical capital, it implies that such investment regarding female human capital needs to be reinforced. Further, there is an evidence of a long-run causal relationship from female human capital, male human capital and physical capital to economic growth variable. The results of variance decomposition show the importance of the female human capital variable is increasing over the time and it exerts the largest influence in change in economic growth.Research limitations/implications The empirical findings suggest that the Indian economy has to pay attention equally on the development of female human capital for short-run as well as long-run growth of the economy. This implies that the policy makers should divert more expenditure for developing support for female education and health.Originality/value To the best of authors’ knowledge, this is the first attempt to study the relationship between female human capital and economic growth in the context of the Indian economy. [ABSTRACT FROM AUTHOR]

This paper investigates the relationship between financial development and access to electricity for rural and urban India by incorporating economic growth, trade, and foreign direct investment in energy production function. In doing so, we have applied autoregressive distributed lag bounds testing to examine long run cointegration between the variables by accommodating structural break(s) stemming in the series. Our empirical results indicate the presence of cointegration association between access to electricity and its determinants. We note that financial development enhances access to electricity in rural India but declines it in urban India. Economic growth has positive effect on access to electricity. Trade openness and foreign direct investment lower access to electricity in rural India. In urban India, trade openness and foreign direct investment increase access to electricity. The association between financial development and access to electricity is inverted-U shaped for rural and urban India. This paper would present new policy direction for Indian government to enhance access to electricity by using financial development as an economic tool. • Financial development and access to electricity have a strong linkage. • In India financial development enhances access to electricity in rural area but has adverse effect in urban area. • Rise in economic growth of India has increased the access to electricity. • Growth of Trade Openness and Foreign Direct investment increase access to electricity. [ABSTRACT FROM AUTHOR]

This paper tries to trace the relationship between finance and growth. There are several indicators which represent the degree of financial intermediation such as M3, Real Rate of Interest (RR) and economic growth. In this paper, we have used Time-series methodology such as Unit Root (ADF and Phillips-Perron Tests), Cointegration (developed by Johansen and Juselius), and Granger Pairwise causality. We have checked the presence of unit roots in the data, and all the three variables-Financial Development, RR and Growth Rate-are found to be integrated at first difference. Secondly, Johansen cointegration test results confirm the presence of long-run equilibrium relationship among the variables. Finally, the Granger causality supports the hypothesis of 'Finance-led Growth' indicating that the finance is a leading sector in India and is poised for development. This result supports the supply-leading hypothesis for Indian economy for the sample period. These findings have important implications for the conduct of economic policies in India. [ABSTRACT FROM AUTHOR]

The paper investigates the determinants of long run finance development in India over the period of April 1994 to April 2011. The investigation is carried out by unit root, cointegration, ARDL bound test approach and VECM. The ARDL finds the existence of long run equilibrium relationship between finance development and economic growth. The VECM confirms the existence of bidirectional causality between finance development and economic growth. It also confirms the existence of unidirectional causality from stock market development to economic growth and from finance development to inflation. The paper at the end suggests that financial development should be considered as the policy variable to enhance economic growth in the Indian economy, especially during the globalization era of 1990s. [ABSTRACT FROM AUTHOR]

Foreign direct investment is an important part of a country's strategy towards growth and development. This is especially true of developing countries, which take several steps to attract foreign direct investment to gain easy access to capital, and advanced technology. Hence, the relationship between economic growth and foreign direct investment must be examined to see if foreign direct investment is having a positive impact on economic growth of a country. This paper examines the nexus between economic growth and foreign direct investment in India for the period 1990-2014. Co-integration analysis and error correction mechanism are used to estimate the causal relationship between economic growth and foreign direct investment. Our empirical findings suggest that causality runs from economic growth to foreign direct investment. The robustness of the above findings is confirmed by the use of granger causality tests and residual diagnostics for the VECM model. For the period under study, we could not find a statistically significant causal relationship running from foreign direct investment to economic growth. [ABSTRACT FROM AUTHOR]

Notable accomplishments in export have made India's software sector conspicuous. This paper attempts to discuss the determinants of software exports from India. The study notes that-besides dynamic elements of economic development across the world-the policy measures and actions of the Indian government have played proactive and facilitating roles in the growth of the software sector. The study uses the autoregressive distributed lag (ARDL) approach to estimate the impact of various explanatory variables on software exports from India. Since causality is found running in both directions for many variables, the study attempts to examine the determinants of software exports from India through the regression equation in first difference. The results suggest that changes in openness index, human capital, and the GDP of high-income OECD countries have exercised positive impact on change in software exports from India. The study finds a stable long run relationship among variables. [ABSTRACT FROM AUTHOR]

There exists an enormous interest in clarification of the relationship between education and economic growth. Over the past 30 years, there have been conducted studies by economists about the connection between education and economic growth. There are actually many publications which provide strong evidence that suggests a correlation between the two. This paper attempts to build upon previous publications and to introduce a unique insight along with contemporary evidence about the relationship between education and economic growth in India from 1975 to 2016 by foc using on primary, secondary and tertiary levels of education. The relationships are examined by utilization of econometric estimations with the Granger Causality Method and the Cointegration Method. These methods are used to create models that could shed light on the claim that education plays a central and significant role in economic growth of India which could consequently be used as an example for similar countries in Asia or around the world. The findings of this work show that there is compelling evidence proving a positive connection between education levels and economic growth in India which might influence governmental actions and shape the future of India. [ABSTRACT FROM AUTHOR]

This paper investigates the causal relations between foreign direct investment and economic growth in a developing country like India. The analysis has been made under Johansen's Cointegration framework based on 21 years of data covering the post reform era of the country. The Cointegration analysis finds strong positive relation between FDI and economic growth in India. The study concludes with a suggestion that the policy makers in India should develop investor friendly environment conducive for attracting more amount of capital from the developed world. [ABSTRACT FROM AUTHOR]

This paper adopts the bounds testing approach to test for the validity of the cointegration or stationarity restriction embodied in five import demand model specifications for CIBS during the period 1970-2007. It identifies long-run relationships in a subset of the five models for each CIBS countries. We find that long-run income elasticities are much higher compared to earlier studies and are higher than the short-run counterparts for CIBS. In addition, contrary to the traditional wisdom, price elasticities are not significantly negative for these countries. [ABSTRACT FROM AUTHOR]

The relationship between health expenditure and economic growth has drawn the attention of economists for many years both at the theoretical and empirical level. This paper investigates the possible dynamic relation between Healthcare Expenditure (HCE) and economic growth by applying Johansen and Juselius cointegration method and Granger causality methods by using state-level data from four Southern Indian states namely, Andhra Pradesh, Karnataka, Kerala and Tamil Nadu for the period 1960-2009. The evidence suggests that there is no long-run relation among the variables studied for all four states. However, in Andhra Pradesh, a unidirectional causality runs from economic growth to health expenditure. [ABSTRACT FROM AUTHOR]

This paper investigates the long run relationship between military expenditures and economic growth in case of Pakistan and India using ARDL bounds testing approach for cointegration and Clemente-Montanes-Reyes approach for unit roots keeping structural breaks in a longer time series data. The study confirms the positive relationship between military expenditures and economic growth at the initial stages and then a negative relationship after a critical point for both countries. The short run results also confirm that the military expenditures can explain the per capita GDP in the short run. Importantly, the causality runs from military expenditures to GDP. [ABSTRACT FROM AUTHOR]

This paper investigates the causal nexus between energy consumption, CO2 emissions, economic growth and trade in India using the Perron (1989) unit root test, Gregory and Hansen (1996) cointegration test and Vector Error Correction Model. The study results exhibit a long-run relationship between energy consumption, CO2 emissions, economic growth and trade in India. The empirical results confirm that energy consumption influences the economic activity in the short-run, implying that higher rate of economic growth is driven by consumption demand for energy in the economy. This is also well in consistent with the findings of Paul and Bhattacharya (2004) in the Indian context. Further, the study detects one way causation exist from energy use to CO2 emission and trade, and CO2 emissions to economic growth in the short-run. [ABSTRACT FROM AUTHOR]

Commodity future markets in India are experiencing unparalleled growth and have attained critical economic significance in the last one decade. On the other hand, instability in commodity prices is becoming an issue of great concern not only for India, but all over the world impacting income, economic growth and a poor adversely. Ever-increasing demand and supply side constraints are adding to the upsurge in prices of metal and agricultural commodities, affecting manufacturers and consumers at the same time. Moreover, farmer participation in the market has been very poor. So the price risk management in commodity is not a cliché but a necessity for the development of future market. In an agriculture based economy like India, commodity derivatives are expected to play a pivotal role in the process of price discovery and risk management. The price discovery in futures markets would not be effective unless spot markets are regulated and integrated. The present paper aims to analyse the performance of futures trading in improvising commodity price risk management in India. The study employs co-integration technique to study the existence of long-term relationship between the spot and future prices of agricultural and metal commodities traded in Indian commodity exchanges. The study also explores the volatility aspect in spot and future prices to test the informational efficiency of the contracts and comment on their suitability for hedging activities. Based on the results, propositions would be made on the nature of speculative conditions and offer suggestions for improvement futures trading in commodities. [ABSTRACT FROM AUTHOR]

In this paper, the relationship between electricity consumption ( LEC) and economic growth ( LGDP) using Autoregressive Distributed Lag ( ARDL) model and Granger causality within error correction framework in India over the period 1970-1971 to 2009-2010 are analysed. The results of these tests exhibit the existence of long-run equilibrium relationship and bilateral causality in case of India. Then, Hodrick- Prescott filter is used to decompose the data into trend and cyclical (fluctuation) components of electricity consumption and economic growth. The results of decomposed series revealed that both series are cointegrated with the strong evidence of bidirectional causality, implying that trend and cyclical components are strongly correlated with business cycles in India. From these findings, we conclude that the feedback hypothesis is applicable in case of India. Therefore, government should undertake necessary policy measures to augment the investment in power sector from existing level and more importantly the emphasis should also be given on the efficient use of electricity. [ABSTRACT FROM AUTHOR]

This research paper is an endeavor to analyze the significance of the growth of Indian sugar industry in overall economic growth of the nation. For analysis purpose, panel data cointegration analysis has been applied on the dataset of 12 major sugar producing states over the period 1974/75 to 2004/05. The empirical analysis reveals that growth of the sugar industry significantly contributes to overall economic growth of states under evaluation. Further, the analysis of the drivers of output growth in Indian sugar industry reveals that given the highest inputs elasticity of sugar output, LNIGIN (i.e., index of growth of inputs) is the most significant variable to accelerate growth of Indian sugar industry. Further, except LNPEIN (managerial efficiency change index), all other variables namely, LNSEIN (scale efficiency change index), LNPTIN and LNIBIN (Indices of Hicks neutral and non-neutral types of technical progress, respectively) contribute positively and significantly to the growth of Indian sugar industry. [ABSTRACT FROM AUTHOR]

The paper investigates the behavior of demographic dimension on the growth of aggregate Government expenditure in the state of Jammu and Kashmir (India) in long and short run. Demographic dimensions, anywhere, are related to different aspects of population which pushes the government expenditure to higher level. The state of Jammu and Kashmir is not the exception, the increasing trend in different aspects of population, rising needs and aspirations of the growing population forces the government to increase expenditure on that count, which result in increase in aggregate government expenditure. Using multivariate co-integration technique followed by VAR model on annual time series data for the period 1984-2013, the study found that demographic dimensions do not have long run association with government expenditure. The demographic variables affect government expenditure only in short run. Our study found that population above 65 and rate of urbanization are significant demographic factors which produce positive change in government expenditure while increase in total population is insignificant to produce change in government expenditure. [ABSTRACT FROM AUTHOR]

A plethora of studies reveals that tourism development and structural change contribute to the socioeconomic progress of the countries. However, the effects of tourism development and structural change on environmental quality are yet to be explored in detail. Hence, the present work evaluates the dynamics of tourism development and structural change on emissions of CO2 as an environmental quality, representative by endogenizing economic progress, consumption of energy, and structural break in India. Toward the empirical front, this study relies on quarterly time series data for 1995Q1–2016Q4 within an approach of bounds testing for cointegration due to its simulation capacity for integration order of the study variables. The emanated outcomes reveal the long-term association between the variables of interest. After validating the long-term correspondence among the variables, the ARDL-based long-run results show that tourism development worsens the quality of the environment, whereas transition in the structure of the economy cause for improving the quality of the environment and structural break in the series shows an insignificant role in carbon emissions. Moreover, it is revealed that economic growth improves the quality of the environment, and consumption of energy exhibits a deleterious association with environmental quality. These findings' robustness is confirmed using fully modified/dynamic OLS and canonical cointegrating regression. Therefore, the study suggests that policymakers must ensure a sustainable tourism practice to reap environmental sustainability. Similarly, the government should promote investment in the service sector to maintain a desirable environmental quality. [ABSTRACT FROM AUTHOR]

This article examines the linkages between inward FDI, services trade (export and import) and economic output using co-integration and VECM causality test. These linkages have been explored both at the aggregate and at the sectoral levels (manufacturing and services). The empirical findings confirm the long-run relationship among these variables. Causality results indicate the presence of bi-directional causal relationship between FDI and economic output as well as between services exports and economic output. The results also bring out feedback relationship between services export and FDI, reconfirming the presence of complementary relationship between the two. At the sectoral level, we find at least a unidirectional causality from FDI and services exports to both manufacturing and services output and also cross-sectoral spillover effects from manufacturing output to services output and vice versa. [ABSTRACT FROM AUTHOR]

In this paper an attempt is made to present the energy scenario of India in terms of energy consumption, energy security and energy efficiency. Growth trends and the changes in growth trends of these variables have been estimated for the period 1981 to 2010. In addition, the study makes an attempt to study the causal relationship between energy consumption and GDP both at aggregate and disaggregate levels using cointegration and Vector Error Correction (VECM) methods. The empirical results reveal that India is energy insecure, in spite of an increase in energy efficiency. It seems energy consumption and GDP are bidirectional related at the aggregate level. In view of these findings some policy suggestions have been provided. [ABSTRACT FROM AUTHOR]

Tis paper examines the impact of military expenditure and economic growth on external debt for a panel of fve selected sAArc countries including Bangladesh, India, nepal, Pakistan and srilanka, over the period of 1988-2008. using Pedroni's (2004) test for panel cointegration, it was found that there is a long-run relationship between external debt, economic growth and military expenditure. Te study fnds that external debt is elastic with respect to military expenditure in the long run and inelastic in the short run. In the long run, 1% increase in military expenditure increase external debt between 1.18 % and 1.24%, while 1% increases in economic growth reduce external debt between 0.64% and 0.79%, by employed dols and fMols estimator respectively. In the short run, 1% increase in military expenditure increases external debt by 0.15%, while 1% increase in economic growth reduces external debt by 0.47 %. [ABSTRACT FROM AUTHOR]

The South Asian Association of Regional Cooperation (SAARC) marked its Silver Jubilee in 2010. The SAARC's charter, which was signed by Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan, and Sri Lanka in 1985, has many similarities to the founding charters of similar regional associations signed elsewhere. While other regional associations have made substantial progress, SAARC has yet to produce notable results. In the context of growing global economic interdependence, it is of interest to assess how far economic growth in each of the SAARC economies has influenced growth in other member countries. Adopting a vector autoregression (VAR) methodology, this paper investigates macroeconomic interdependence in the South Asian region with a view to evaluating its readiness to forge ahead with its integration efforts. The findings of the study reveal that India has been influencing economic growth in the region, as its output variability has been affecting outputs in other member countries. If SAARC has to become successful as a regional bloc, India as the biggest gainer from trade and investment relationships should take some bold steps, which would represent some readiness to part with some of the gains derived by way of trade surpluses.JEL Classifications: F15, O53 [ABSTRACT FROM AUTHOR]

The perception is that under the existing global economic structure and developments the global stock markets of most countries are becoming gradually more integrated. Indian markets are no more exception to these developments and in India the issue is also gaining attention in the post liberalization era. With this background, the research aims to examine the common perception of global integration from an Indian stock market perspective. The investigation was carried out, in the first instance, in a straightforward way. The aim was to ascertain whether the Indian stock market is integrated with three Asian markets, namely Hong Kong, Singapore, and Japan and the four other global markets of the USA, UK, Germany and France, perceived to be driving Indian stock prices. Based on monthly data series from April 1992 to March 2009 both the long-run relationships and the short-run dynamics operating between the seven markets under the global economic and financial system were studied. The findings of the study suggest that Indian stock markets are very much integrated with other global markets in short run but less integrated in long run. [ABSTRACT FROM AUTHOR]

Abstract: This paper addresses the impact of both economic growth and financial development on environmental degradation using a panel cointegration technique for the period between 1980 and 2007, except for Russia (1992–2007). In long-run equilibrium, CO2 emissions appear to be energy consumption elastic and FDI inelastic, and the results seem to support the Environmental Kuznets Curve (EKC) hypothesis. The causality results indicate that there exists strong bidirectional causality between emissions and FDI and unidirectional strong causality running from output to FDI. The evidence seems to support the pollution haven and both the halo and scale effects. Therefore, in attracting FDI, developing countries should strictly examine the qualifications for foreign investment or to promote environmental protection through the coordinated know-how and technological transfer with foreign companies to avoid environmental damage. Additionally, there exists strong output-emissions and output-energy consumption bidirectional causality, while there is unidirectional strong causality running from energy consumption to emissions. Overall, the method of managing both energy demand and FDI and increasing both investment in the energy supply and energy efficiency to reduce CO2 emissions and without compromising the country’s competitiveness can be adopted by energy-dependent BRIC countries. [ABSTRACT FROM AUTHOR]

This study empirically examines the cointegrating relationship among variables, viz. carbon emission, economic growth, square of economic growth, primary energy supply, financial development and trade openness in India, with a view to validate the Environmental Kuznets Curve (EKC) hypothesis. The results based on ARDL bounds testing approach to cointegration find no credence to EKC hypothesis, for the period 1971–2016. This indicates that the relationships between carbon emission and economic growth are not significant, and therefore, the EKC hypothesis does not hold in the case of India. Furthermore, the study establishes a significant positive relationship between energy supply and carbon emission. A proportionate increase in energy supply causes more than proportionate increase in carbon emission. In order to cope up with the positive impact of energy on carbon emission, the study suggests that the country needs to expedite the process of enhancing the capacity of renewable and clean energy generation. [ABSTRACT FROM AUTHOR]

Predicting the exchange rate fluctuations and volatility is possibly one of the very toughest exercises in economics as it affects the market movement. The dynamic relationship between stock prices and exchange rate have drawn the attention of many economists for both theoretical and empirical reasons and plays an important role in influencing the development of a country's economy (Nieh & Lee, 2001). Therefore, the present study is focusing on stock market prices and exchange rate, which in theory, is expected that one affects the other. The US Dollar (USD)-Indian Rupee (INR) exchange rates and stock market prices of India from January 2006 to December 2015 are considered as sample data for this study. In this research, Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) unit root tests are applied to test stationarity of data and the data was found stationary at first difference. Karl Pearson correlation test was used to find the correlating relationship between the variables and it is found that both the variables are significantly correlated. Johansen's cointegration test is applied to determine the long-run equilibrium relationship between the study variables and identified that the variables are not cointegrated. Granger causality test is employed to determine the causality and short-run relationship between the variables and the result revealed bidirectional causality between variables. [ABSTRACT FROM AUTHOR]

This study examines the linkages between agriculture, industry, and services sectors, and analyses the pattern of economic growth in India. The vector autoregression model is estimated on annual data for the period 1950–1951 to 2009–2010. The results provide strong support for the long-run and a weak support for the short-run linkages among sectors. The development of rural sector is generally synonymous with the growth of agriculture and that of urban sector with the growth of manufacturing and services sectors. The services sector bypassed the successful completion of the process of industrialization, and prematurely emerged as the dominant driver and key lever of economic growth. The development strategy needs to be rebalanced to revitalize agriculture to generate rural employment, support industry, and provide the wage goods and food security. The revitalization of agriculture needs to be complemented by the development of highly productive and internationally competitive manufacturing sector to boost the manufacturing goods exports, stimulate the positive productivity spillovers, provide productive job opportunities to surplus labour in agriculture, generate urban employment, reduce underemployment and disguised unemployment in the informal sector of the urban economy, and accomplish the process of industrialization. [ABSTRACT FROM PUBLISHER]

The main objective of this study is to find out causal relationship between FDI and GDP, presence or absence of long run equilibrium relationship between FDI and GDP during post reform period. The required data of FDI and GDP is collected from RBI database for 64 quarters commencing from Q2 of 1998 to Q2 of 2014 and GDP is used as proxy for economic growth. The result of Johansen cointegration test indicates long run equilibrium relationship between FDI and GDP. Granger causality test indicates unidirectional relationship running from GDP to FDI, so it is concluded that GDP Granger causes to FDI and inflow of FDI in India is economic growth induced. The findings suggest government must devise strategies that will lead to economic growth as inflow of FDI follows to economic growth. [ABSTRACT FROM AUTHOR]

Energy security is crucial for sustaining high economic growth in India. This article empirically estimates India’s long- and short-term demand relations for crude oil, diesel and petrol (gasoline) using the ARDL and ECM cointegration procedures and then uses them to project demand for these products up to 2025 under various scenarios of GDP growth and oil prices. Our projections show that over 2012 to 2025, demand is likely to increase by about 74% for crude oil, 117% for diesel and 136% for petrol – the annual growth rates being about 4.3% for crude oil, 6.1% for diesel and 6.8% for petrol (gasoline). This article suggests that India needs to (1) take measures to improve efficiency in the use of petroleum products; (2) try to enhance supplies such as through production sharing agreements by Indian oil companies with other countries and (3) increase the use of nuclear, hydro, solar and other alternative energy sources, as Western European countries have done. [ABSTRACT FROM PUBLISHER]

This study reinvestigates the effect of defence spending on economic growth using Zivot and Andrews and Lee and Strazicich, structural unit root tests and the autoregressive distributed lag bounds testing approach to cointegration in augmented version of Keynesian model for India. Study confirmed long run relationship among variables studied show that economic growth is positively affected by defence spending (also negative impact after a threshold point), investment and trade openness while negatively by interest rate. Granger causality analysis revealed bidirectional causal relationship between defence spending and economic growth as probed by variance decomposition approach. [ABSTRACT FROM AUTHOR]

The study probes cointegration and Granger causality between telephone connections and economic activity for India using annual data for the time span 1980-81 to 2006-07. Empirical results fail to establish any cointegrating relationship among the variables. The heterogeneity of penetration within different states of the country and within the time period of analysis may explain the lack of a long term relationship among the variables. The study, however, establishes short-run unidirectional Granger causality running from telephone connections to economic growth signifying the strategic importance of telecommunications for the Indian growth story. It re-enforces the urgency of initiatives aimed at providing universal telephone and data connectivity to the entire population. To study the behavior of variables out of the sample period, generalized impulse response paths due to the various shocks to the system are studied. The findings are that GDP responds positively to a one-time shock in telephone connections but returns to its initial levels after 4 years. The study discusses the possible reasons behind the empirical findings and concludes with a discussion of policy prescriptions to augment telephone connectivity in India. [ABSTRACT FROM AUTHOR]

Available studies on Small and Medium Enterprises (SMEs) have mainly focused on performance indicators, role of financial institutions and sources of growth in many developing countries. The present study utilizes the cointegration analysis to examine the causal relationship between SMEs output, exports, employment, number of SMEs and their fixed investment and India’s GDP, total exports and employment (public and private) for the period 1973-74 to 2006-07. The result reveals positive causality between SMEs output and India’s GDP. Error Correction Mechanism (ECM) was employed for analyzing the short-run relationship between the variables relating to SMEs and India’s growth. The ECM results indicate that independent variables positively affect the dependent variables in the short run. [ABSTRACT FROM AUTHOR]

The two-way link between foreign direct investment and growth for India is explored using a structural cointegration model with vector error correction mechanism. The existence of two cointegrating vectors between GDP, FDI, the unit labour cost and the share of import duty in tax revenue is found, which captures the long run relationship between FDI and GDP. A parsimonious vector error correction model (VECM) is then estimated to find the short run dynamics of FDI and growth. Our VECM model reveals three important features: (a) GDP in India is not Granger caused by FDI; the causality runs more from GDP to FDI; (b) trade liberalization policy of the Indian government had some positive short run impact on the FDI flow; and (c) FDI tends to lower the unit labour cost suggesting that FDI in India is labour displacing. [ABSTRACT FROM AUTHOR]