ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Foreign Direct Investment, Portfolio Investment and Macro-Economic Stability

and Macro-Economic Stability Ranjit Sau Foreign capital comes in two forms: direct foreign investment (DFl) and foreign portfolio investment (FPI). This paper presents a simple model to examine the conditions of stability with the inflow of foreign capital We find that the equilibrium is most likely to be stable if the interest-elasticity of DFl is high andthqt of FPI is low. The experience of India, however, indicates that the situation here is just the reverse that implies the possibility of instability.

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