Journal of Indian School of Political Economy

Ranjan Kumar Dash ¹, Chandan Sharma ²

Affiliations
1 National Council of Applied Economic Research (NCAER), Parisila Bhawan, 11, Indraprastha Estate, New Delhi-110002, IN
2 FORE School of Management, B-18, Qutab Institutional Area, New Delhi, IN

Abstract

Despite a large volume of literature on the relationship among Foreign Direct Investment (FDI), Trade, and Economic Growth, the debate relating to causality linkage among them is far from over. This paper re-examines the relationship among FDI, trade, and economic growth in the case of India. The study is based on a Vector Autoregression (VAR) model applying Ganger non-causality test of Toda and Yamamoto Amatory in [1995] for the period 1996Q4 to 2007Q4. Evidence shows that there is bi-directional causality between FDI and economic growth. At the same time, there is a unidirectional causality, which runs from FDI to export as well as from FDI to import. Furthermore, decomposition of causality suggests that 46 per cent causality runs from FDI flows to export, 2l per cent from export to FDI, and the remaining 33 per cent is due to two-way causality. As far as import is concerned, of the total dependence, 55 per cent is due to causation flowing from FDI to import, 27 per cent due to causation flowing from import to FDI and 18 per cent is due to contemporaneous or two-way causality.

Keywords

FDI, Trade, Causality, Toda-Yamamoto Test, Linear Decomposition.

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Ranjan Kumar Dash ¹, Sumanjeet ²

Affiliations
1 Centre for Development Studies, Thiruvananthapuram, Kerala, IN
2 Department of Commerce, M. D. University, Rohtak, Haryana, IN

Abstract

Liquidity is accepted as one of the major conditions for smooth functioning of stock markets. Variations in the degree of liquidity affect the price discovery process and efficiency of the market. In this context, the objective of this paper is to find out the impact of stock market reforms on Liquidity. In this paper, we calculate both static and dynamic liquidity indicators and also develop a market liquidity index, in order to assess the impact of reforms on market liquidity. A number of measures of liquidity are considered because there is no single theoretically correct and universally accepted measure to gauge the degree of market liquidity. Our study period is 1990-2004. Our result suggests that stock market reforms have positive impact on market liquidity and efficiency.

Keywords

Stock Market Reforms, Market Liquidity, Market Microstructure, and Bombay Stock Exchange.

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