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Abstract
The study tries to examine the various set of factors which influence the flow of ODI Identifying the causes for low inflow and suggestive remedial measures to increase the flow of ODI in India with that of other developing nations in the world.Outside Direct Investment (ODI) plays a very important role in the development of the nation. It is very much vital in the case of underdeveloped and developing countries. A typical characteristic of these developing and underdeveloped economies is the fact that these economies do not have the needed level of savings and income in order to meet the required level of investment needed to sustain the growth of the economy. This research study aims to examine the impact of ODI on the Indian economy, particularly after two decades of economic reforms, and analyzes the challenges to position itself favorably in the global competition for ODI.Outside direct investment (ODI) has boomed in post-reform India. Moreover, the composition and type of ODI has changed considerably since India has opened up to world markets. This has fuelled high expectations that ODI may serve as a catalyst to higher economic growth. We assess the growth implications of ODI in India by subjecting industry-specific ODI and output data to Granger causality tests within a panel cointegration framework. It turns out that the growth effects of ODI vary widely across sectors. ODI stocks and output are mutually reinforcing in the manufacturing sector. In sharp contrast, any causal relationship is absent in the primary sector. Most strikingly, we find only transitory effects of ODI on output in the services sector, which attracted the bulk of ODI in the post-reform era. These differences in the ODI-growth relationship suggest that ODI is unlikely to work wonders in India if only remaining regulations were relaxed and still more industries opened up to ODI.