Determinants of Foreign Capital: A Dynamic Analysis

This Paper analyses the various issues of foreign capital investment in India and estimates dynamic panel data models more specifically the Generalized Method of Moments (GMM) technique by using data for 300 companies for the period 1984-85 to 2003-04, for empirically identifying the determinants of demand for foreign capital of the private corporate sector in India. The period analysis has also been carried out to gauge the impact of liberalization on the determinants. The Paper finds that domestic long-term borrowings ratio, size of the firm, and market risk are the major determinants of the demand for foreign capital of the private corporate sector in India.