ANALYSING

FOREIGN DIRECT
INVESTMENT
TRENDS IN
INDIA

CONTRIBUTORS

NIKUNJ BHAWSINKA MAKHREO ENOCH CHALAI

SATWIK MISHRA SANCHIT BUDHIRAJA
MEHAK GARG DIYO JACOB
ABSTRACT:
This paper aims to examine the relationship between five macroeconomic
variables and FDI inflows in India from 2000 to 2022, using data from the World
Bank, Economic Times, and RBI website among others. By using descriptive
statistics like correlation coefficients and trend analysis, we found that there
exists a positive relationship of FDI inflows with infrastructural spending and
foreign exchange rate and a negative association with GDP growth rate.
Moreover, there exists minimal correlation between population growth rate and
FDI inflows, while no significant evidence is found linking Ease of Doing Business
rankings with FDI.

INTRODUCTION:
This paper analyses the macroeconomic determinants of FDI for the period 2000-
2022.In this paper we discuss several important factors which are expected to
influence FDI inflows in India.

These include Foreign Exchange Rate, Political Stability, Macroeconomic Stability,

Trade Openness, Infrastructure, Human Capital Development, Cost of Factors of
Production, Growth Rate of GDP, Impact of Taxes and Man-days lost, Central
Government Policies, Credit Worthiness, Domestic Interest Rates and Market
Size.This study is important since in the past two decades the global economy has
witnessed sharp rise in FDI inflows particularly in developing economies like India.

The motivation behind analyzing the trends of FDI in India is to gain insights into
the country’s economic growth and its attractiveness to international investors.

FDI plays a crucial role in stimulating economic development, creating jobs, and
fostering technological advancements. FDI helps to bridge the saving investment
gap and meet the foreign exchange requirements for the host country. Hence
understanding FDI flows is very crucial for the policymakers.

The study is organized as follows. Factors that influence FDI are discussed in the
following section, which lays the foundation for empirical analysis. Data and
methodology used is discussed in the section thereafter. Finally, the results are
presented and discussed, followed by conclusions and limitations of the study.
The literature provides several factors responsible for FDI in a
country.The factors are as follows:
1.Foreign Exchange Rate:
Depreciation of the currency of the host country increases the relative value of the wealth held
by firms in the host country. This encourages the MNCs to invest more in the form of FDI in the
host country.

According to the study conducted by Pami Dua and Reetika Garg, the depreciation of the
currency of the host country helps to increase FDI inflows in the host country.

The study conducted by B.K. Lokesha and D.S Leelavathy shows that there exists a negative
relation between foreign exchange rate and FDI because depreciation of the currency attracts
the foreign investors to invest in the home country.

Study by M. Jaya Krishna and J. Venugopal also states that decrease in the foreign exchange
rate helps to increase the inflow of FDI.

Study by Muhammad Tariq Majeed and Eatzaz Ahmad states that depreciation of the host
country currency helps to increase FDI inflow in the host country. This is because investors can
now hire more labour for a given amount of the home country currency.

2. Political Stability:
Political stability is a crucial factor that determines the level of FDI a country receives. Countries
with a stable political environment are likely to attract more FDI compared to countries with
political instability.

Study conducted by M. Jaya Krishna and J. Venugopal shows that there exists a positive
relationship between FDI inflows and political stability i.e higher the stability higher is the FDI
inflow.

According to the study by B.K. Lokesha and D.S Leelavathy, political stability helps to increase
inflow of FDI because when there exists political stability it gives a sense of safety and security
of investment.

Study conducted by Cheng Hsiao and Yan Shen also found out that political stability acts as a
lucrative factor for foreign investors to invest in the country.

3. Macroeconomic Stability:
Countries with stable economic conditions are likely to attract more FDI compared to countries
with unstable economic conditions as it provides a predictable and secure environment for
investment.
According to the study of Pami Dua and Reetika Garg, macroeconomic stability has a positive
relationship with FDI inflows i.e. low volatility helps to attract more FDI. This is because low
volatility indicates stability and reflects lower risk and uncertainty.

Balance of Payments position of a country is also an indicator of economic stability. Deficit in

Balance of Payment means that the country is not in a good financial position.

The studies conducted by Muhammad Tareeq Majeed and Eatzaz Ahmed shows that there
exists a negative and insignificant relationship between BOP and FDI. This is because if a
country is in bad financial position then it will be able to spend less on developmental activities
and is more likely to raise import duties and other taxes leading to negative effects on FDI.

As per studies by B.K. Lokesha and D.S. Leelavathy various factors such as debt GDP ratio,
industrial disputes, inflation rates, balance of payment also affect the countries inflow of FDI.
Lower the debt GDP ratio lower the liabilities of a country or higher the GDP which attracts FDI.
Thus there exists an inverse relationship between debt and FDI inflows in the host country.
Similarly, industrial disputes can cause rise in production cost leading to decrease in FDIinflows.

4. Trade Openness:
According to the study conducted by Pami Dua and Reetika Garg, there exists a negative
relationship between trade openness and FDI. This is supportive of the fact that FDI flows to the
country are tariff jumping in nature. The high tariffs leading to lower trade openness provides
incentives to the firms to access the markets of the host country through FDI.

Study conducted by M. Jaya Krishna and J. Venugopal shows that there is an inverse
relationship between openness and FDI. This is because there exist bottlenecks (such as weak
protection of property rights) which need to be fixed through institutional reforms.

According to the study conducted by Cheng Hsiao and Yan Shen there exists negative
relationship between trade openness and FDI inflows in the home country.

5. Infrastructure:
Infrastructure is a critical factor that can have a significant impact on FDI inflows into a country.
This is because a country's infrastructure affects the overall business environment and
determines the ease with which foreign investors can operate within the country.

According to the study conducted by B.K. Lokesha and D.S Leelavathy, there exists a positive
relationship between infrastructure and FDI inflows.

Study conducted by Cheng Hsiao and Yan Shen also shows that better infrastructure facilities
have a positive and significant impact on FDI because there are better methods of spreading
information and better transportation facilities which are crucial for functioning of an economy.
6. Human Capital Development:
Countries that invest in human capital development are likely to be more attractive to foreign
investors than those that do not. This is because a well-educated and skilled workforce can
provide the skilled labour necessary for businesses to operate effectively, promote innovation
and increase productivity and efficiency.

In the study of Cheng Hsiao and Yan Shen, illiteracy rate had been used to approximate the
accumulation of human capital. It was found that a higher illiteracy rate is detrimental to FDI.

Study conducted by M. Jaya Krishna and J. Venugopal demonstrates that countries with more
skilled labour at lower costs are more appealing to investors or MNCs.

7. Cost of Factors of Production :

Countries with low labour costs may be more attractive to foreign investors in labour-intensive
industries, while countries with a low cost of skilled labour may be more attractive to foreign
investors in industries that require skilled labour.

According to the study conducted by B.K. Lokesha and D.S Leelavathy, lower wages attracts
MNCs to invest in the host country because lower cost of wages reduces the cost of
productionas well as distribution.

Study conducted by Hao Huang and Y. H. Dennis Wei shows that cost of labour is not a
statistically significant factor affecting FDI.

Similarly, there exists a negative relationship between cost of capital acquisition and FDI. Lower
the cost more the investors will be attracted towards the host country.

This result is supported by the study of B.K. Lokesha and D.S. Leelavathy. The study shows that
low cost of capital or low lending rates not only increases the flow of FDI in the host country but
also increases the return on investment. It helps to attract direct investors from the foreign
countries because lower cost of capital implies higher domestic consumption. Thus there exists
a negative relationship between cost of capital acquisition and FDI inflows.

8.Growth Rate of GDP:

Countries with higher GDP growth are more attractive to the foreign investors as they provide
good opportunities for businesses to expand and invest.

According to study by M. Jayakrishna and J. Venugopal a good indicator high GDP growth rate
is "INDEX OF INDUSTRIAL PRODUCTION".

This index is used to show the nation's industrial growth. Thus the study found out that there
exists a positive relationship between FDI inflows and IIP I.e. Higher the growth more is the
inflow of FDI and vice-versa.

Also according to a study by Muhammad Tareeq Majeed and Eatzaz Ahmed there exists a
positive relationship between GDP growth rate and FDI.
9.Impact of Taxes and Man-days Lost:
According to the study conducted by Muhammad Tariq Majeed and Eatzaz Ahmad, taxes
have a negative and insignificant effect on foreign direct investment. This negative relationship
is indicative of lacking fiscal incentives.

Study conducted by M. Jaya Krishna and J. Venugopal shows that taxes and man-days lost due
to labour strike have insignificant effect on FDI. This shows that corporation tax and man-days
lost as a result of labor strikes are not important to foreign investors.

10. Central Government Policies:

The study by B.K. Lokesha and D.S. Leelavathy concludes that more the liberalised policy
framework more is the inflow of FDI. Various policies like liberalised industrial policy, trade
policy, tax policy etc. attract FDI as it gives the economy freedom in terms of foreign investment
and technology by removing major restrictions on imports and exports of goods and services.

According to Hao Huang and Y. H. Dennis Wei policies designed by the central government
have a positive impact on FDI as such policies can create an enabling environment for
investment, provide incentives to investors, and regulate foreign investment.

11. Credit Worthiness:

According to Pami Dua and Reetika Garg, credit worthiness is generally measured by foreign
exchange reserves to import ratio.

The study finds that there exists a positive relationship between FDI inflows and Foreign
Exchange Reserves to Import Ratio i.e higher the ratio higher is the FDI and vice-versa. This is
because higher ratio indicates higher liquidity and lower risk.

12. Domestic Interest Rates:

The study conducted by Pami Dua and Reetika Garg shows that there exists a positive
relationship between domestic interest rate and FDI inflows i.e higher the interest rate, higher
is the FDI inflow and vice-versa.

This is because higher interest rate in the host country (particularly interest on long term
government securities) makes the investor believe that this is the minimum percentage which
he would get as return.
 DATA AND DESCRIPTIVE STATISTICS
SOURCE OF DATA:

 For Balance of Payments of India- RBI Website

 For Ease of Doing Business rankings- World Bank
 For GDP(In Lakh Crores)- Economic Times, World Bank
 For Expenditure on Infrastructure as a percentage of GDP-statista.com
 For Market Size- World Bank
 For Exchange Rate of $ to INR-bookmyforex.com

DATA IS TIME SERIES DATA

VARIABLES USED FOR ANALYSIS:

1. Ease of Doing Business-The Ease of Doing Business is a ranking system established by the World
Bank. In the Ease of Doing Business Index, higher rankings (i.e lower numerical value)indicates better
and simple regulations for businesses and stronger protections of property rights.

UNITS OF MEASUREMENT-Ranks

2. Market Size-Market Size in terms of population refers to the total number of individuals within a
specific geographic area or target market who are potential customers or consumers of a particular
product, service or industry. It represents the potential customer base available to businesses for
sellingtheir goods and services.

When we assess the market size, population is one of the key factors to consider.

UNITS OF MEASUREMENT-In Billion

3. Nominal GDP-

GDP stands for Gross Domestic Product. It is an economic indicator that measures the total value of all
final goods and services produced within the country’s borders during a fixed period of time. Generally it
is counted for a period of one year.

Nominal GDP is measured with reference to the current year prices. It represents the economic output
of acountry without adjusting for inflation.

UNITS OF MEASUREMENT-In Lakh Crores

4. Expenditure on Infrastructure as a percentage of GDP-

This variable shows how much percentage of GDP is allocated for infrastructural development in that
particular year.

UNITS OF MEASUREMENT- In Percentage.

 5. Exchange Rate of $ to INR- Exchange Rate refers to the rate at which one currency is exchanged
foranother currency. It represents the value of one currency relative to another.

UNITS OF MEASUREMENT-In INR (i.e 1$ is equal to how many INR)

6. Balance of Payments- It provides a record of all economic transactions between the residents of
thecountry and the rest of the world over a specific time period (typically a year).

UNITS OF MEASUREMENT-In Rs Crores.

TABLE FOR DESCRIPTIVE STATISTICS

GROWTH IN EXCHANGE RATE GROWTH RATE OF GDP

FINANCIAL YEAR GROWTH RATE(IN %) YEAR GROWTH RATE (IN %)

2000 2.42 2000 2.17
2001 5 2001 4.25
2002 3 2002 6.12
2003 -4.17 2003 19.23
2004 -2.78 2004 16.12
2005 -2.69 2005 15.27
2006 2.74 2006 14.45
2007 -8.74 2007 29.47
2008 5.22
2008 -0.81
2009 11.26
2009 11.47
2010 -5.53
2010 25
2011 2.05
2012 14.50 2011 7.05
2013 5.85 2012 0.54
2014 10.18 2013 1.63
2015 1.02 2014 9.67
2016 5.54 2015 2.94
2017 2 2016 9.04
2018 3.39 2017 15.72
2019 0.42 2018 1.88
2020 8.50 2019 4.81
2021 -2.36 2020 -5.65
2022 9.09 2021 19.10
2022 3.77
TABLE NO : 1

SOURCE : BOOKMYFOREX.COM TABLE NO : 2

SOURCE : ECONOMIC TIMES , WORLD BANK

 NET FOREIGN DIRECT INVESTMENT

STATISTICS NET FOREIGN DIRECT FINANCIAL YEAR GROWTH RATE OF FDI(IN %)

INVESTMENT(IN RS CRORES) 2002 46.82
MEAN 127560 2003 -31.09
MEDIAN 98712 2004 -7.63
MINIMUM 13698 2005 -4.90
MAXIMUM 325382 2006 53.02
RANGE 311684 2007 82.20
STANDARD DEVIATION 106928 2008 63.22
SKEWNESS 0.490431494 2009 23.23
KURTOSIS -1.22705805 2010 22.69
2011 -66.49
TABLE NO : 3 SOURCE : RBI 2012 214.86
2013 4.84
2014 72.64
POPULATION GROWTH RATE 2015 6.85
2016 18.13
2017 1.31
YEARS GROWTH 2018 -18.33
RATE(DECADAL)(%) 2019 9.68
1981-1991 23.9 2020 43.43
1991-2001 21.5 2021 6.74
2001-2011 17.7 2022 -11.65
2011-2021 12.69
TABLE NO : 4
TABLE NO :5 SOURCE : WORLD BANK
SOURCE : RBI

EXPENDITURE ON INFRASTRUCTURE

AS A PERCENTAGE OF GDP EASE OF DOING BUSINESS

EXPENDITURE ON STATISTICS
STATISTICS INFRASTRUCTURE (in %) RANKS
MEAN 4.91% MAXIMUM 142
MEDIAN 4.90% MINIMUM 63
MINIMUM 3.70%
MAXIMUM 6.44% TABLE NO : 7
RANGE 2.74%
STANDARD DEVIATION 0.68% SOURCE : WORLD BANK
SKEWNESS 0.4301
KURTOSIS -0.3244

TABLE NO : 6
SOURCE : STATISTA.COM
 EASE OF DOING BUSINESS

150
142
134 133 134 132 133 132
130 131 130

120 122
116

100
100
RANKINGS

63 63

50

0
2005 2010 2015 2020

YEAR

FIGURE- 1
SOURCE: WORLD BANK
 EXPENDITURE ON INFRASTRUCTURE AS A PERCENTAGE OF GDP
6.5%

6.44%

6.0% 5.90%

5.70%
5.60%

5.5%

5.20%
PERCENTAGE (%)

5.0% 5.15% 4.90%

4.90%

4.70% 4.50%
4.5% 4.40%

4.30%

4.0% 4.10%

3.90%

3.70%
2000 2005 2010 2015 2020
YEAR

FIGURE -2
SOURCE: STATISTA.COM
 EXCHANGE RATE ($ TO INR)
81.35
80
76.38
74.57

70.09 70.39
67.79
66.46

62.33 62.97

60
56.57
53.44
Exchange rate ($ to INR)

48.61 48.41
47.19 46.58
44.94 45.32 45.31 45.73 46.67
44.10 43.51
43.06
41.35
40

20

0
2000 2005 2010 2015 2020
YEAR

FIGURE -3 SOURCE : BOOKMYFOREX.COM

 GDP (IN LAKH CRORES) BY YEAR
3.5
3.30
3.18

3.0
2.83
2.65 2.70

2.67
2.5
2.29

2.04
GDP (IN LAKH CRORES)

2.0 1.86
1.82
1.70

1.5

1.23

1.22
1.0
0.83

0.62
0.49
0.5

0.46

0.0
2000 2005 2010 2015 2020
YEAR

FIGURE -4 SOURCE: ECONOMICS TIMES, WORLD BANK

 NET FOREIGN DIRECT INVESTMENT
350K

300K

250K

200K
FDI

150K

100K

50K

0K
2000 2005 2010 2015 2020
YEAR

FIGURE - 5 SOURCE: RBI

 RESULTS AND ANALYSES

1. INFRASTRUCTURAL SPENDING:

On calculating, it was found that the correlation coefficient between

expenditure on infrastructure as a percentage of GDP and FDI
inflows(net) was 0.8602 .

This indicates that there exists a strong positive relationship between

Infrastructural spending and FDI inflows.Thus by looking at the
correlation coefficient we can conclude that the foreign investors do
pay much attention to infrastructure while investing in INDIA.

Moreover in the papers we read the authors B.K. Lokesha and D.S
Leelavathy, Cheng Hsiao and Yan Shen also mentioned that there
exists a positive relationship between infrastructural spending and FDI
inflows.

The authors Cheng Hsiao and Yan Shen reason that better
infrastructural facilities has a positive impact on FDI inflows due to
improved information dissemination and better transportation facilities
which are crucial for the functioning of an economy.Similarly the
authors B.K. Lokesha and D.S Leelavathy supported the positive
relationship by concluding that the infrastructure affects overall
business environment and determines the ease with which the foreign
firms operate in a country.
 EXPENDITURE ON INFRASTRUCTURE (IN RS THOUSAND CRORES) AND NET FDI (IN 10 THOUSAND CRORES) BY YEAR
EXPENDITURE ON INFRASTRUCTURE(IN RS THOUSAND CRORES) NET FDI (IN 10 THOUSAND CRORES)
14 35

32.5

12.5 12.4
30.5
11.9
12 30

11.6 28.7
11.2

10 9.5 23.9 25
23.6
9.2

8.6
8
7.9 8.7
7.0 20
18.7
19.5

6.7
6 15

4.7
10.8
4.0
9.4
4 10

2.9
6.2
2.0
2 2.5 5
3.8

1.5 1.5 2.3 1.4

1.4
1.2 3.3

0 1.4 0
2000 2005 2010 2015 2020

FIGURE – 6 SOURCE : FDI-RBI , INFRASTRUCTURE- STATISTA.COM

2. GROWTH RATE OF GDP:

On calculating it was found that the correlation coefficient between

growth rate of GDP and FDI inflows(net) was -0.2326.

This indicates that there exists a negative relationship between FDI

inflows(net) and growth rate of GDP.This analysis negates with the
conclusions which the authors M. Jayakrishna and J. Venugopal,
Muhammad Tareeq Majeed and Eatzaz Ahmed reached in the
literature review in which they found out a positive relationship
between FDI inflows(net) and GDP.

The authors reason that countries with higher GDP growth rate are
more attractive to investors as they provide very good opportunities for
the new businesses to expand and invest.

The counter intuitive results are possible since we have conducted our
analysis without holding other factors constant which should have been
done to obtain reliable results.
NET FDI (IN 10 THOUSAND CRORES) GROWTH RATE OF GDP (IN %)

32.54

30.48
29.47
30

28.75
25.00
23.58 23.89

20 19.23 19.10
18.68

19.51
15.72
15.27

14.45 11.47
10.82
9.43 9.67
10
7.68
6.12 6.23
4.81
3.82
2.26
1.56 1.44
3.77
3.28 2.94
2.17 1.88
0 1.54 1.37
0.54
-0.81

-5.65

-10
2000 2005 2010 2015 2020

FIGURE -7 SOURCE : FDI-RBI , GROWTH RATE OF GDP- ECONOMIC TIMES,WORLD BANK

3. FOREIGN EXCHANGE RATE:

On calculating it was found that the correlation coefficient between

growth of Foreign Exchange Rate and FDI was 0.268.

This indicates that there exists a positive relationship between Foreign

Exchange Rate and FDI inflows.This means that when foreign exchange
rate rises, FDI inflows increase.This is because rise in the Foreign
Exchange Rate implies that the currency of the home country is
depreciating and thus investors get more attracted towards it.

This conclusion of ours matches exactly with the conclusion reached by

the several authors including Pami Dua and Reetika Garg, B.K. Lokesha
and D.S Leelavathy among others.All the authors who mentioned
Foreign Exchange Rates in their study mentioned the same thing i.e
depreciating currency of the home country helps to attract more FDI
inflows.
NET FDI (IN 10 THOUSAND CRORES) GROWTH OF EXCHANGE RATE(IN %)
40

9.09

8.50

-2.36
30

28.75
5.54
2.00
10.18

3.39
20

14.50
32.54
30.48

11.26 5.85

23.58 23.89

10 19.51
18.68

-5.53
10.82
9.43
5.00 3.00 7.68
2.74 6.23
3.82 3.28
2.42 2.26
1.54 1.56 1.44 1.37
0 -2.69
-4.17 -8.74

2000 2005 2010 2015 2020

FIGURE - 8 SOURCE : FDI-RBI , GROWTH OF EXCHANGE RATE - BOOKMYFOREX.COM

4. EASE OF DOING BUSINESS:

On analysis we found no concrete evidence that the improvement of

rank of a particular country in the Ease of Doing Business Rankings has
any static impact on its FDI inflows.

Thus we conclude that Ease of Doing Business may or may not impact
FDI inflows in a particular country.Further we link the Ease of Doing
Business to Trade Openness present in our Literature Review since it is
related to or affect the rankings of a particular country.

The study by authors Pami Dua and Reetika Garg, M. Jaya Krishna and
J. Venugopal and Cheng Hsiao and Yan Shen finds that there exists a
inverse or negative relationship between trade openness and FDI
inflows.The authors M. Jaya Krishna and J. Venugopal reason that this
is because there exists bottlenecks such as weak protection of property
rights which needs to be fixed through institutional reforms.

The study by Pami Dua and Reetika Garg reasons by saying that this is
because the FDI flows to the country are tariff jumping in nature.The
high tariffs leading to lower trade openness provides incentives to the
firms to access the markets of the host country through FDI.

The counter-intuitive result is possible since we have conducted our

analysis without holding other factors constant which should have been
done to obtain more reliable results.
 RELATION BETWEEN NET FDI AND EASE OF DOING BUSINESS
160

142
140 134 132 130 130

120
116
120

100
100
VALUES

80
EASE OF DOING BUSINESS (POSITIONS)
63
NET FDI (IN 10 THOUSAND CRORES)
60

40
23.89
19.96 19.5 21.4
18.68
20 10.81
2.1 3.82
1.37
0
2005 2006 2007 2013 2014 2015 2017 2018 2019

YEAR

FIGURE - 9

SOURCE : FDI-RBI , EASE OF DOING BUSINESS - WORLD BANK

5. MARKET SIZE:

On calculating the correlation coefficient between the growth rate of

population(market size) and FDI inflows it was found to be -0.123.

This implies that there exists a negligible correlation between the

growth rate of population and FDI inflows.This implies that the
investors do not or very rarely consider market size (population here)
as one of the factors while making investments in other countries.

However the study conducted by the author Pami Dua and Reetika
Garg found that there exists a positive relationship between market
size and FDI inflows.The authors argue that in a large market,the
production cost will be less due to economies of scale.Thus more
investors will get attracted to that particular country resulting in
increasing FDI inflows.

The counter-intuitive result is possible since we have conducted our

analysis without holding other factors constant which should have been
done to predict the relation more accurately.
 NET FDI VS MARKET GROWTH RATE
6

2
MARKET GROWTH RATE (IN %)
NET FDI(IN LAKH CRORES)
1

0
1995 2000 2005 2010 2015 2020 2025

-1

-2

-3

FIGURE - 10

SOURCE : FDI- RBI , MARKET SIZE - WORLD BANK

 HYPOTHESIS TESTING

Question: Testing whether infrastructural spending affects

FDI inflows in a particular country.

Defining the Hypothesis:

𝐻0:𝜌 ≤ 0
𝐻𝑎:𝜌 > 0

Confidence level:
For testing our hypothesis we take confidence level of
95%Degrees of freedom= n-2
= 25-2
= 23

Test Statistic:

𝜌 𝑛−2
𝑇=
1 − 𝜌2
Decision Rule:

If 𝑡𝑐𝑎𝑙 ≥ 𝑡𝛼,−2 ,we reject the null hypothesis.

Otherwise we do not reject the null hypothesis

Calculations
As per our calculation we found the correlation value to be
𝜌 = 0.8602
This implies that
𝜌 𝑛−2
𝑡=
1 − 𝜌2

(0.8602) 25 − 2
=
1 − (0.8602)2

= 8.09

We also know that 𝑡0.05,23=1.714

Hence the value of 𝑡𝑐𝑎𝑙 ≥ 𝑡0.05,−2 and hence we reject the null
hypothesis.
This implies that there exists a statistically significant
positive correlation between infrastructural spending and
FDI inflows.

NOTE: Since the number of observations are 25 we assume

normality and hence we use the t-distribution.
 LIMITATIONS

1. Focus on Nominal Variables:

Due to the lack of data for the real variables such as GDP and Exchange Rate,we
had to rely on the use of Nominal Variables.

2. Insufficient Quantitative Variables:

Another limitation is the scarcity of quantitative variables in our dataset.The

limited availability of quantitative data restricted the scope of our analysis.

3. Lack of Data for certain years:

We encountered missing data for certain years in our dataset. Specifically,we lack
rankings of India in the ease of doing business index for the years 2020,2021 since
no study was conducted that year due to COVID-19.Additionally we could not find
any reliable source for expenditure on infrastructure as a percentage of GDP for
the year 2022.

4. Use of Advanced Econometric Methods:

Due to lack of knowledge, we were not able to use advanced econometric

methods. Our analysis was simply on the basis of trends. This might affect the
quality of our study as well as the conclusions.

Overall all these limitations might have impacted the precision, depth and
comprehensiveness of our project’s analysis and findings.Thus it is important to
acknowledge these limitations while interpreting the results of our study.
SOME IMPORTANT POINTS:
1. The value of the correlation coefficient and the central tendencies
are as per the data available by the authors and calculations done by
them.

2. Values of correlation and their relations are as follows:

VALUE CORRELATION

0-0.3 Very little or no correlation

0.3-0.5 Low correlation

0.5-0.7 Moderately Correlated

0.7-0.9 Highly Correlated

0.9-1.0 Very Highly Correlated

REFERENCES:

1. Pami Dua and Reetika Garg, "MACROECONOMIC DETERMINANTS OF

FOREIGN DIRECT INVESTMENT: EVIDENCE FROM INDIA", The Journal of
Developing Areas ,Winter 2015, Vol. 49, No. 1 (Winter 2015), pp.133-155
<https://www.jstor.org/stable/24241279>
2. B.K. Lokesha and D.S. Leelavathy, "Determinants of Foreign Direct
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