An Econometric Analysis on Determinants of Foreign PortfolioInvestment in India using the ARDL Approach

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An Econometric Analysis on Determinants of Foreign PortfolioInvestment in India using the ARDL Approach

ABSTRACT : In 1991, the Indian economy began a financial liberalization initiative, which resulted in an increase of capital flows as well as a significant change in how these flows were financed. Foreign portfolio investment (FPI) is a critical component of capital inflows in every country, acting as a vital driver of global economic integration and growth. Foreign capital inflows can have both positive and negative consequences for a country’s economic progress. Very few studies have looked at FPI as an important part of foreign investment in developing nations. The current study aims to investigate the factors influencing foreign portfolio investment in India. The findings of the ARDL Bound test reveal that the Bombay Stock Exchange, Index of Industrial Production, and Openness all have a considerable positive impact on foreign portfolio investment in India. In contrast, both exports and imports have a large negative influence on foreign portfolio investment in the country.

KEYWORDS – ARDL, Foreign Portfolio Investment, Unit Root Test, ECM, Sensex

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