Interaction of market size, inflation and trade openness on foreign direct investment inflows in India, China and Japan: panel dynamic analysis

In the world of competitiveness, FDI is considered as a macroeconomic component, and that developing countries are introducing it as a substitute for their larger investment gaps in policies. Fast-growing countries like China, India, and Japan are also no exception to this. Findings from the study confirm the existence of a long-term relationship among the variables. The long-run dynamic equation shows a greater degree of openness and an expansion of market size attracts more FDI in the long run, whilst raising the inflation rate discourages foreigners from investing. In the short run, none of the variables have any sort of significant relationship with the Granger causality test, giving an interesting insight that unidirectional causalities exist with the remaining variables, which run from FDI to trade openness. In a nutshell, FDI helps to sustain the economies of these countries through its multiplier impact on other macroeconomic factors.