Political Stability, Trade Openness, and Institutional Factors Affecting Foreign Direct Investment in India
This study investigates the impact of political stability, trade openness, corruption, business freedom, market size, inflation, and industrialization on foreign direct investment (FDI) inflows to India from 1999–2000 to 2019–2020. Annual time-series data sourced from the World Bank, UNCTAD, and the Heritage Foundation are analysed using ordinary least squares (OLS) estimation and Granger causality tests. The results show that corruption has a significant negative effect on FDI, whereas market size exerts a significant positive influence. Industrialization, business freedom, and trade openness exhibit positive but statistically insignificant effects. Political stability and inflation also show no significant impact. Granger causality analysis reveals unidirectional causality from business freedom, trade openness, and political stability to FDI, and bidirectional causality between market size and FDI. These findings suggest that strengthening governance, expanding market opportunities, and enhancing institutional quality are crucial for attracting sustainable FDI inflows into India.
© The Author(s) 2025. Published by RITHA Publishing. This article is distributed under the terms of the license CC-BY 4.0., which permits any further distribution in any medium, provided the original work is properly cited maintaining attribution to the author(s) and the title of the work, journal citation and URL DOI.
Article’s history: Received 4th of August, 2025; Revised 27th of August, 2025; Accepted 29th of August, 2025; Available online: 1st of September, 2025. Published as article in Volume I, Issue 1(1), 2025
Sarbapriya, R. (2025). Political Stability, Trade Openness, and Institutional Factors Affecting Foreign Direct Investment in India. Applied Journal of Economics, Law and Governance, Volume I, Issue 1(1), 67-87. https://doi.org/10.57017/ajelg.v1.i1(1).04
Acknowledgments: The author is thankful to anonymous referees for valuable comments and helpful suggestions in the earlier draft of the article. After careful revisions, if any error is found in the article, the responsibility solely lies on author himself.
Funding: There is no funding agency of this research as the author receives no grant from any institutions.
Conflict of Interest Statement: The author declares that the research was conducted in the absence of any commercial or financial relationships that could be construed as a potential conflict of interest.
Data Availability Statement: Data available on request: The data presented in this study are available on request from the corresponding author.
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