Foreign Direct Investment, Domestic Investment, and Sustainable Development: Long-Run and Short-Run Dynamics

Registration ID: IJNRD_312736

Published ID: IJNRD2602254

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Aatish Yadav, Vibha Yadav, Archana Singh, Shabi Raza

Keywords: Foreign Direct Investment, Domestic Investment, ARDL, Sustainable Development Goals, Economic Growth

Foreign Direct Investment (FDI) is often seen as a catalyst for economic growth and sustainable development. However, its interaction with domestic investment remains an empirical question, especially in emerging economies such as India. By evaluating how external capital flows support domestic capital formation, the analysis specifically advances SDGs 8 (Decent Work and Economic Growth) and 9 (Industry, Innovation, and Infrastructure). The study employs the Autoregressive Distributed Lag (ARDL) bounds testing method with time series annual data on per capita income, FDI inflows, domestic credits to the private sector, gross capital formation, and GDP. The mixed order of integration verified that the ARDL methodology can be applied using unit root tests. The results of bounds test show a stable long-run cointegrating relation between the variables, and the error correction term highly significant, indicating that the variables are rapidly approaching equilibrium. The long-run estimates indicate that economic growth, financial depth, and rising income levels significantly boost domestic investment in India, while FDI has a statistically insignificant effect. Furthermore, short-run dynamics also confirm that FDI neither crowds in nor crowds out domestic investment. The results indicate that India’s domestic investment trajectory is basically primarily driven by internal macroeconomic fundamentals rather than by foreign capital inflows. From a policy perspective, the results infer that achieving sustainable and inclusive growth requires strengthening domestic financial systems, enhancing credit accessibility, and improving absorptive capacity to translate FDI into meaningful domestic investment. The study underlines the importance of aligning FDI policy with broader development strategies to effectively support India’s progress toward the Sustainable Development Goals. Keywords: Foreign Direct Investment, Domestic Investment, ARDL, Sustainable Development Goals, Economic Growth

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Aatish Yadav, Vibha Yadav, Archana Singh, & Shabi Raza (February-2026). Foreign Direct Investment, Domestic Investment, and Sustainable Development: Long-Run and Short-Run Dynamics. INTERNATIONAL JOURNAL OF NOVEL RESEARCH AND DEVELOPMENT, 11(2), c576-c585. https://ijnrd.org/papers/IJNRD2602254.pdf

Volume 11 Issue 2, February-2026

Pages : c576-c585

Paper Reg. ID: IJNRD_312736

Published Paper Id: IJNRD2602254

Research Area: Other area not in list

Author Type: Indian Author

Country: Lucknow , Uttar Pradesh, India

Published Paper PDF: https://ijnrd.org/papers/IJNRD2602254.pdf

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