This paper examines two most important benefits and costs of foreign direct investment in the Indian context - GDP growth and the environment degradation. We find a statistically significant long run positive, but marginal, impact of FDI inflow on GDP growth in India during 1980-2003. On the other hand, the long run growth impact of FDI inflow on CO2 emissions is quite large. The actual impact on the environment, however, may be larger because CO2 emission is one of the many pollutants generated by economic activities. But CO2 being a global air pollutant, our finding has some far reaching implications for the global environment as well, with India having emerged as the fourth highest in the global ranking of CO2 emissions by turn of this century.
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