The impact of regional trade agreements on FDI inflows in India

In recent years, India has not only signed numerous regional trade agreements (RTAs) but has also attracted a significant amount of foreign direct investment (FDI). In fact, India started signing FTAs with special investment clauses to secure higher FDI. India received substantial amount of FDI from its FTA partners. In the context of proliferating trade agreements combined with higher FDI inflows, it is crucial to examine the impact of RTAs in the attracting FDI in India. This study attempts to make an assessment of the volume of the FDI inflows in India from its FTA partners. This paper further aims to identify the key drivers of inward FDI to India for the period 1993–2023. In this study, we create a physical infrastructure index for India and employ a vector error correction model along with other macroeconomic variables for the analyses. We find that net FDI inflows, GDP per capita, forex reserves and inflation have a statistically significant long-run association. We also find that GDP per capita, forex reserves and the physical infrastructure index Granger cause net FDI inflows.