Foreign Direct Investment, International Trade, and the Environment: Evidences from India

India has adopted the liberalization policy in 1991 which has reduced the trade barriers and investment restrictions and increased the foreign direct investment (FDI) inflows and GDP (Gross Domestic Product) growth of the economy. At the same time it has impacted the environment and energy usage. This paper examines the direction of causality between FDI inflows, trade, GDP, energy use and CO2 by using Granger Causality test since liberalization. The findings of the paper revealed that there is one uni- directional (GDP and Energy Use) and bi-directional causal relationships (Imports and energy use) found. The direction of causality reveals that economy is majorly dependent on energy sources (Coal, Gas etc) for development and growth which makes India dependant on conventional sources of energy. In long run these conventional sources of production turns out as major factor of environmental degradations. The paper concludes the policy recommendations that will ensure environmental friendly investment and growth in India for future.