Transport Infrastructure, Foreign Direct Investment and Economic Growth Interactions in India: The ARDL Bounds Testing Approach

AbstractThe paper works out the long-run relationship between transport infrastructure (TRA), foreign direct investment (FD) and economic growth (GDP) in India. Using autoregressive distributed lag (ARDL) and vector error- correction model (VECM), we find that transport infrastructure is cointegrated with foreign direct investment and economic growth, indicating the affirmed presence of long-run equilibrium relationships among them. Our causality test further confirms the presence of bidirectional causality between TRA and FDI, TRA and GDP and FDI and GDP. The policy implications of our results are straightforward. If India needs to generate additional foreign direct investment and economic growth, fostering transport infrastructure development is urgently required as a condition precedent to faster economic growth. Moreover, bringing more FDI to the country can also foster transport infrastructure development and higher economic growth. Similarly, maintaining high economic growth can accelerate both FDI inflows and rapid transport infrastructure development in India. In short, all main variables positively interact in the development process