Abstract

Present paper attempts to investigate the effect of FDI on economic growth of China and India. To take care of
the issue of structural change in economy, time period of the study is taken to be 1993-2009. First of all we built
our modified growth model from basic growth model. The factors included in growth model were GDP, Humal
Capital, Labor Force, FDI and Gross Capital Formation, among which GDP was dependent variable while rest
four were independent variables. After running OLS (Ordinary Least Square) method of regression we found
that 1% increase in FDI would result in 0.07% increase in GDP of China and 0.02% increase in GDP of India.
We also found that China’s growth is more affected by FDI, than India’s growth. The study also provides
possible reasons behind China’s great show of FDI and the lessons India should learn from China for better
utilization of FDI.

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