Impact of Foreign Direct Investment on Human Development Index: A Study of Indian Economy

Foreign Direct Investment (FDI) is widely recognized as a crucial catalyst for economic growth, while the Human Development Index (HDI) serves as a comprehensive measure of a nation’s social and economic progress. Despite numerous studies investigating the connection between FDI, HDI, globalization, and other factors, the precise nature of the relationship between FDI and HDI remains somewhat unclear. This research paper aims to bridge this gap by empirically examining the impact of FDI on India’s HDI score. Utilizing the time-series data from World Bank Indicators and the Handbook of Indian Economy spanning the period 1990-2022, the study employs the Autoregressive Distributed Lag (ARDL) model to analyze the long-run impact of FDI on HDI. Furthermore, Error Correction Model is employed to investigate the short-run relationships between these variables. The empirical findings indicated the existence of long-run and short-run relationship between FDI and HDI along with a positive response of both the variables to a shock (impulse) in the corresponding variable. These findings are expected to provide valuable insights to the extent to which FDI contributes to human development in India. By understanding the nature and strength of this relationship, policymakers can formulate more effective strategies to attract and leverage FDI for enhancing human development outcomes, including improving education, healthcare, and overall quality of life for Indian citizens.