Real Exchange Rate Response to Inward Foreign Direct Investment in Liberalized India

The impact of foreign capital inflows in India on the real exchange rate is examined using quarterly ta for the period 1994-95Q1 to 2009-10Q4 that is just after the spread of the neo liberal doctrine. he time series under study are found to be non-stationary and integrated of order one. The ohansen multivariate co-integration test is used to establish a link between the real exchange rate nd relevant macroeconomic variables. The result suggests that Foreign Direct Investment (FDI) nd workers’ remittances affect real exchange rate positively in India. Generalized variance ecompositions indicate that FDI has more prudent impact on real exchange rate