Symmetric and Asymmetric Nexus between Institutional Quality and Sectorial Foreign Direct Investment Inflow in India: A Fresh Insight Using Simulated Dynamic ARDL Approach

Abstract

This study investigates the bidirectional causal relationship between institutional quality and aggregated and disaggregated (primary, secondary and services sector) FDI inflow in India by employing new simulated autoregressive distributed lag (SARDL) dynamic techniques, which is an extended version of NARDL and ARDL. The empirical results supports that institutional quality strongly attract aggregated and disaggregated FDI and reversely FDI enhance the quality of institutions. The nexus between FDI inflow and institutional quality is good news for India to enhance the institutional quality and catch-up on advanced economies. The empirical findings detect cointegration and bidirectional causal-relationship between aggregated FDI and institutional quality.