Do FDI and Public Investment Crowd in or Crowd out Private Domestic Investment in India

This paper examines the dynamic relationship between Private Domestic Investment (PDI), Foreign Direct Investment (FDI) and Public Investment (PU) in India for the period 1978–79 to 2009–10. Zivot and Andrews test has been used to know the structural break points in the data series. The empirical results derived from structural VAR model indicate that FDI has crowding in effects on PDI, whereas, PU neither ‘crowd out’ nor ‘crowd in’ PDI. Further, we found the evidence that shocks in PU and PDI have positively improved the FDI inflows in India.