Determinants of Foreign Direct Investment in India

The theories of FDI explain why firms undertake foreign investment rather than export to overseas markets but it is equally important to understand where these investments flow or what determine foreign investment flows to a particular region. The determinants of FDI can be grouped under two categories (i) economic conditions and (ii) host country policies. Present paper had analyses the determinants of FDI inflows in India. Paper has discussed the changes in the various determinants of FDI over the period 2012-13. Using correlation matrix and multiple regression analysis, the relationship between FDI determinants and FDI inflows was analysed. As the variables have higher degree of correlation leading to problem of multicolinearity, step wise regression was performed to understand the individual and combined impact of various factors. We found that the size of GDP and rate of growth of GDP are important for attracting higher inflows of FDI. Higher FOREX reserves also helped India in attracting FDI inflows. Thus government should focus on maintaining higher Forex reserves and accelerating rate of growth for attracting higher FDI inflow. Keywords