The contribution of foreign direct investment to economic growth in the selected emerging European countries: The evidence based upon the panel cointegration model

Abstract

This paper is aimed at examining the fact whether foreign direct investment (FDI) and exports do contribute to economic growth in the thirteen European Union (EU) new member states (namely Bulgaria, Croatia, Cyprus, Czech, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, Slovakia, Slovenia) during the period from 2005 to 2020 or not. Various statistical tests were performed in order to examine the relationship and causality among the three observed series, including unit-root tests, the Kao and Pedroni cointegration tests, and finally the modified causality test. The obtained results are mixed. Although cointegration was established between FDI, exports and growth, the estimation of the long-term coefficients varied to such an extent that only ambiguous conclusions about the effect of FDI and exports on the growth of the real gross domestic product (GDP) could be reached. The research results imply the fact that positive effects of FDI and exports are neither automatic nor equal in all the countries, but the same rather depend on the many factors and conditions that the governments of the selected states should consider when designing policy measures for attracting FDI and promoting exports.

Keywords

• foreign direct investment
• gross domestic product
• exports
• the eu new member states
• cointegration
• causal relationship