An analysis of Indian FDI inflows through an augmented gravity model: exploring new insights

Historically, India has been a great investment opportunity for foreigners. However, in the last several decades, the country has experienced a substantial increase in its foreign direct investment (FDI) owing to several reforms made by the government. This study analyzes the determining factors behind Indian FDI inflows from its top source countries using the augmented gravity model. The sample period of this study ranges from 2000 to 2019, thus providing an updated analysis regarding FDI inflows. To attain the objective of this paper, we employ several econometric techniques such as Poisson pseudo maximum likelihood (PPML), feasible generalized least square (FGLS), and Newey-West standard error models. The findings show that the source country’s per capita GDP is a negative determinant of FDI inflows in India from selected countries of the world. Moreover, FDI openness, gross fixed capital formation, and exports are found as the positive determinants of FDI inflows in India. The results imply that more export-oriented sectors can be identified for the selected nations, encouraging inflows. The country should look forward to incorporating new elements in old bilateral investment treaties as per the new conditions of the world economy.