Major economic reforms in India have been associated with crises be it Green Revolution in the early 1970s on account of food shortages or balance of payments crisis of the early 1980s. Though economic liberalization in India can be traced back to the late 1970s, economic reforms began in intense only in July 1991 in the wake of balance of payment crisis. The purpose of the paper is to examine the trends and pattern of FDI inflows in to India during the post reform periods by finding out the linear growth rate of FDI and other economic variables during the pre and post reform periods. In addition, as one of the main objectives of India’s economic reforms was to attract higher amount of foreign direct investment, for this reason, this paper attempts to empirically test the impact of economic reforms on FDI inflows especially during the pre and post liberalisation era (1971-2009).


The required data for the analysis have been culled out from the published records of UNCTAD, RBI. FDI data have been squeezed out from UNCTAD and economic variables have been sourced from RBI’s Handbook of Indian Economy and variables like FDI, GDP, and export which are expressed in crores, are defined in real values by deflating it to 1999-2000 prices using GDP deflator. The data covers a period of 1971 to 2009, overall 39 observations. All the variables are expressed in natural log. The variable labour is proxied by ratio of economically active labor force, those who are employed in both public and private sector to total population. The number of main telephone lines per 1000 population is used as a proxy to measure infrastructure development. Growth rate per capita GDP influences the foreign capital inflow. It is used as a measure of attractiveness of the host country’s market. In order to capture the impact of economic reforms on FDI in India, the researcher has introduced the dummy variables capturing the effect of starting year of economic liberalization process. The study has taken the value of “1” for the years post liberalization period and “0” for the years before the process started.

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