FDI, Financial Development and Economic Growth: Evidence from Select Indian States.

This article investigates the relationship between foreign direct investment (FDI), financial development (FD), and economic growth across six Indian states from 2001 to 2018, using the pooled mean group (PMG) estimation technique. The study finds that while financial development positively influences economic growth, FDI alone has a negative long-run impact on output growth. However, the interaction between FDI and financial development is positive and significant, indicating that a well-developed financial market enhances the growth benefits derived from FDI. These results suggest that financial market development is a crucial prerequisite for Indian states to effectively leverage FDI for economic growth. The analysis is limited to six states due to data availability, with recommendations for future research to include all Indian states as more comprehensive data become accessible.