Foreign Direct Investment and Infrastructure Development: Evidence from India

Abstract

The availability of developed infrastructural facilities is a sine-qua-non of progress of the economy. Adequate infrastructure is necessary not only to facilitate domestic investment but also to woo foreign investment. In this backdrop, this paper analyzes the role of infrastructure facilities in determining the attractiveness of foreign direct investment in India. Using Vector Auto Regression (VAR) technique, the study aims to analyze the significant infrastructure variables that influenced FDI in India from 1991 to 2010. The results of the analysis lead to the conclusion that among the physical infrastructure variables, internet facilities, roads, rail efficiency and investment in energy influenced FDI over the period of study. However, human development variables, namely, education level and wage rates also effect FDI inflows in India.