Impact of Macro Level Variables on External Commercial Borrowing in India: An Empirical Analysis

Abstract

The present analysis empirically examines the long-run association between External commercial borrowing (ECB), and different macro level variables, namely, interest rate differential, exchange rate, growth rate differential, global liquidity, foreign direct investment, foreign portfolio investment, trade openness, domestic credit and inflation differential in India on quarterly basis for the period from April-June 2001(Q1) to January-March 2020 (Q4). Byapplying the Johansen Co-Integration and Vector Error Correction Model (VECM) it is found that growth rate differential, global liquidity, domestic credit, inflation differential, exchange rate and foreign portfolio investment significantly influence the inflows of ECB in India. Implications are drawn and the study recommends that policies of the country must be sound enough to encourage a manageable inflow of ECB in long term, which lend support to the development of an economy.