Empirical Analysis of the Causal Relationship between Nominal Exchange Rate and Foreign Direct Investment in India Using VAR (Vector Autoregression Model)

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Dr. J. V. Ramana Raju
Dr. J. V. Ramana Raju
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Dr. Mayuresh S. Gokhale
Dr. Mayuresh S. Gokhale
α Jain University, Bangalore.

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Empirical Analysis of the Causal Relationship between Nominal Exchange Rate and Foreign Direct Investment in India Using VAR (Vector Autoregression Model)

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Abstract

The present study tries to establish a causal relationship between the nominal exchange rate and foreign direct investment in India using a time series data between 1992 and 2010. It tries to understand whether the fluctuation in the exchange rate in turn causes the change in the quantum of foreign direct investments inflows and vice-versa which is of enormous importance in the wake of unprecedented depreciation of Indian Rupee against US dollar. Our analysis uses unit root test and Johenson cointegration test to show whether the variables under consideration exhibit stationarity and a long run association respectively. The test indicates absence of any long term association between the two variables under consideration. In the present context it appears that the data is not stationary at level and is stationary at first difference. The Vector Auto regression (VAR) model depicts that the coefficients do not have any long run association.

References

10 Cites in Article
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  2. Jose Campa (1993). Entry by Foreign Firms in the United States Under Exchange Rate Uncertainty.
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  7. K Froot,J Stein (1991). Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach.
  8. Harris Ravenscroft,D (1991). The role of acquisition in Foreign Direct Investment: Evidence from US Stock Market.
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Funding

No external funding was declared for this work.

Conflict of Interest

The authors declare no conflict of interest.

Ethical Approval

No ethics committee approval was required for this article type.

Data Availability

Not applicable for this article.

How to Cite This Article

Dr. J. V. Ramana Raju. 1970. \u201cEmpirical Analysis of the Causal Relationship between Nominal Exchange Rate and Foreign Direct Investment in India Using VAR (Vector Autoregression Model)\u201d. Unknown Journal GJMBR Volume 12 (GJMBR Volume 12 Issue 22): .

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Issue Cover
GJMBR Volume 12 Issue 22
Pg. 74- 79
Journal Specifications
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v1.2

Issue date

December 22, 2012

Language
en
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The present study tries to establish a causal relationship between the nominal exchange rate and foreign direct investment in India using a time series data between 1992 and 2010. It tries to understand whether the fluctuation in the exchange rate in turn causes the change in the quantum of foreign direct investments inflows and vice-versa which is of enormous importance in the wake of unprecedented depreciation of Indian Rupee against US dollar. Our analysis uses unit root test and Johenson cointegration test to show whether the variables under consideration exhibit stationarity and a long run association respectively. The test indicates absence of any long term association between the two variables under consideration. In the present context it appears that the data is not stationary at level and is stationary at first difference. The Vector Auto regression (VAR) model depicts that the coefficients do not have any long run association.

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Empirical Analysis of the Causal Relationship between Nominal Exchange Rate and Foreign Direct Investment in India Using VAR (Vector Autoregression Model)

Dr. Mayuresh S. Gokhale
Dr. Mayuresh S. Gokhale
J. V. Ramana Raju
J. V. Ramana Raju

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