FDI Inflows and Exports of Automobile Industry in India: A Cointegration Approach.

The study examines the role of foreign direct investment (FDI) in shaping the export trajectory of the Indian automobile sector. The study uses VECM technique to determine the existence of cointegration between FDI inflows and exports of automobile industry, and to check the long-run and short-run dynamism among the variables. It uses annual time series data on exports and FDI inflows in the industry by considering Indian rupee real effective exchange rate (REER) and world GDP as control variables. The study finds that FDI inflows positively and significantly affect the exports of automobile industry in India in the long run. The findings also validate the J-curve theory of effect of depreciation on the exports of automobile industry that depreciation of Indian rupee has a favorable effect on the exports or trade balance of this industry. The study finds a significant relationship between FDI inflows and exports in only one direction, i.e., running from FDI inflows to exports of the industry. Furthermore, the results show that there is bidirectional causality between India’s rupee REER and FDI inflows in automobile industry. The results suggest that providing a conducive environment to foreign players would positively impact the exports of the automobile industry. [ABSTRACT FROM AUTHOR]