Bilateral Foreign Direct Investment and Foreign Trade in India : Are They Substitutes or Complementary?

This paper attempts to test the hypothesis of complementary/substitution relationship between Foreign Direct Investment (FDI) and foreign trade in India with here selected trade partners using co-integration technique and error correction framework. The data used are quarterly from 1992 II to 2009 III. The analysis revealed mixed results, but mostly supporting the substitution relationship with here trade partners. The findings support the observation that most FDI inflows in India are domestic market-oriented and market-seeking in nature