UNRAVELLING CAPITAL CURRENTS AMIDST GEOPOLITICAL SHIFTS

Abstract

Foreign Direct Investment (FDI) plays a vital role in economic growth, technology transfer, employment generation, and global integration, particularly in emerging economies such as India. This study examines the impact of geopolitical risk and key macroeconomic factors on FDI inflows into India during the period 1991–2024. Using annual time-series data from the CEIC Global Database, the study employs an Ordinary Least Squares (OLS) regression model to analyse the relationship between FDI inflows and the Geopolitical Risk (GPR) Index, GDP per capita, inflation, Consumer Price Index (CPI), and exchange rate. The results indicate that the model possesses strong explanatory power, accounting for approximately 89% of the variation in FDI inflows. GDP per capita positively influences FDI, in contrast, inflation and exchange rate depreciation exhibit negative effects, suggesting that macroeconomic instability discourages foreign investors. The Geopolitical Risk Index is found to have a statistically significant negative impact on FDI inflows, confirming that increased geopolitical uncertainty reduces investor confidence and discourages long-term investment commitments. The study concludes that maintaining macroeconomic stability, ensuring policy predictability, and mitigating the effects of geopolitical uncertainty are essential for sustaining FDI inflows into India.