Impact of FDI Inflows on India's Balance of Payments

One of the most important aspects of research is identifying causality between different macroeconomic variables. The study is an attempt to build a causal relationship between two vital macroeconomic variables, that is, FDI and components of Balance of Payments for India. In order to reach a conclusion, an applied econometrics approach is used in the study as opposed to simple statistical tools. Due importance has been given to epistemological considerations. Toda and Yamamto (1995) approach to granger causality is explored and employed. The outcomes of the research give credible insights into the causal nature and default patterns of the variables with respect to the Indian economy. Further, the concept of global structural breaks is used as the basis for identifying short run out of the total sample period. For the purpose of interpolation, Cardinal Spline method is used which considers both past numeric values and future numeric values. There has been overwhelming evidence for the checking of both uni-directional causality and bi-directional causality. Other supportive techniques, though not so popular, such as Quantile Regression is also engaged in the study.