FDI and environmental stringency in India
Student name: Ms Mansha Sehgal
Guide: Prof Kanchan Chopra
Year of completion: 2013
Host Organisation: TERI University
Abstract: This paper empirically examines the relationship between environmental stringency and
inflow of FDI in India. A time series regression analysis has been used to test whether
environmental stringency and awareness acts as a deterrent to inbound FDI. To construct the
environmental index; governance aspect is captured by MEA, environmental rules and
policies. The awareness of policy structure is captured by PILs in areas of water pollution
and forestry. This relationship with FDI is tested at cumulative level i.e. via automatic
approval route and the amount flowing in Drugs and Pharmaceutical sector. Alternate
regression specifications are tried to determine the significance of macroeconomic
parameters and environmental index in explaining inbound FDI. Our finding suggests that
environmental stringency is insignificant in affecting FDI inflow at cumulative level and has
a positive impact on inbound FDI in Drugs & Pharmaceutical sector. Other important
variables which were significant in attracting FDI were trade openness and infrastructure
facilities in India.
