Indicators of growth
of international
business
Indicators of growth of international business
The indicators that highlight the growth of International Business are as
follows:
Trade/GDP Ratio
FDI/GDP Ratio
FDI/Capital formation Ratio
Trade/GDP Ratio
• The trade-to-GDP ratio is obtained by dividing trade over a period by
GDP of same period. It is expressed as percentage of GDP. It is also an
indicator of openness of an economy and thus is called trade openness
ratio.
• Since degree of trade represents openness of an economy with respect to
other economies, trade-GDP Ratio also indicates degree of globalization,
which implies that more is this ratio, more globalized an economy is.
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• The Trade-GDP Ratio of Singapore is highest in the world and thus, that country
can be said to be most globalized country around the world.
• India's Trade/GDP ratio was reported as 43.68% in 2021, according to the World
Bank collection of development indicators, compiled from officially recognized
sources. In 2020 it was 37..81%. So we can see a 5.87% increase in the ratio.
India trade to gdp ratio for 2020 was 37.81%, a 2.16% decline from 2019.
India trade to gdp ratio for 2019 was 39.96%, a 3.65% decline from 2018.
India trade to gdp ratio for 2018 was 43.62%, a 2.87% increase from 2017.
FDI/GDP Ratio
• Foreign direct investment in India and other countries reflects the foreign
ownership of production facilities.
• Gross domestic product (GDP) is the total monetary or market value of all the
finished goods and services produced within a country’s borders in a specific
time period.
• FDI to GDP ratio is relevant measure of a country's openness to FDI.A country
with this ratio more than unity is said to have received more FDI than implied
by the size of the economy. It indicates that the country have better growth
prospects .
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• If this ratio is less than unity it indicates that the country is protectionist
and technologically backward. Or we can say that the country's social and
political conditions is not suitable for investment.
• This ratio gives an idea about the investment climate prevailing in the host
country. A country with liberal policies may have higher FDI to GDP
ratio.
• India's FDI to GDP ratio is reported as 2.7% in 2022 whereas it was
3.1% in 2021.
FDI/Capital formation Ratio
• Capital formation is a major determinant of economic growth. While the
domestic investments add to the capital stock in an economy ,FDI plays a
complementary role in overall capital formation by filling the gap between
the domestic savings and investments.
• FDI flows expressed as a per cent of capital formation can provide a crude
measure of the importance of FDI in an economy's capital formation.
• The contribution of FDI in the Capital formation of India is just 4% for
the last 5 years.
