COINTEGRATION BETWEEN FDI AND GDP IN CHINA - AN EMPIRICAL STUDY(Pages 171-184) by V. JayakumDr. L. Krishna Veni* and Mr. B. Lohithkumar**ar in THE INTERNATIONAL MANAGER / ISSN: 2348-9413 (Online); 2348-9405 (Print)

The inflow Foreign Direct Investment (FDII) is playing very crucial role in the economic development of China since the adoption of open door policy since 1980s. The FDI inflow in China began to increase significantly due to factors like market size, growth of the economy, low labor cost, quality infrastructure, open policies to international trade, economic policies, tax policies, exchange rate etc. The role of FDI inflows in stimulating the growth process has become a central issue in many emerging countries including China .This study empirically estimates the effect of FDI on GDP in India, using the cointegration approach for the period 1990 to 2013. The result of Ordinary Least Square Method suggests that there is positive relationship between the inflow of FDI and GDP and vice versa. Using the ADF Test, it is found that both the inflow of FDI at first difference and GDP at second difference level are found stationary. Johansen cointegration test confirmed the existence of long run equilibrium relationship between these two variables at lag length 5. Finally the Granger causality test established the presence of bi-directional causality which runs from the inflow of FDI to GDP and from GDP to the inflow of FDI in China during the study period. Keywords: FDI, GDP, Unit Root Test, Johansen Cointegration, Granger Causality.