Does Foreign Direct Investment Actually Drive Inclusive Growth? New Evidence from India

This study investigates the complex relationship between foreign direct investment (FDI) and inclusive growth in India, highlighting the conditions under which FDI contributes to broad-based economic development. Using long-term econometric analysis, the research finds that a 1% increase in FDI correlates with a 1.09% rise in inclusive growth, provided critical enablers such as manufacturing development and infrastructure quality are present. The study identifies bidirectional causality between FDI and inclusive growth, underscoring a potential feedback loop that can reinforce both. However, without strategic policy interventions, FDI may exacerbate regional inequalities. The findings stress the need for targeted investment strategies, institutional reforms, and regional development priorities to unlock FDI’s full potential in driving equitable and inclusive economic outcomes.