Exploring Foreign Direct Investment–Economic Growth Nexus—Empirical Evidence from Central and Eastern European Countries

Ștefan Cristian Gherghina,Liliana Nicoleta Simionescu,Oana Simona Hudea

doi:10.3390/su11195421

Ștefan Cristian Gherghina, Liliana Nicoleta Simionescu + Show 1 more

Open Access

https://doi.org/10.3390/su11195421

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Abstract

This study aims to examine the link between foreign direct investment (FDI) inflows and economic growth, also considering several institutional quality variables, as well as sustainable development goals (SDGs) set in the 2030 Agenda for Sustainable Development. By estimating panel data regression models for a sample of 11 Central and Eastern European countries, from 2003 to 2016, the empirical outcomes provide support for a non-linear relationship between FDI and gross domestic product per capita. Regarding institutional quality, it is found that control of corruption, government effectiveness, regulatory quality, rule of law, and voice and accountability positively influence growth, while political stability and absence of violence/terrorism is not statistically significant. Moreover, SDGs such as poverty, income distribution, education, innovation, transport infrastructure, and information technology are noteworthy drivers of growth. The outcomes of panel fully modified and dynamic ordinary least squares partly confirm the findings. The panel vector error-correction model Granger causalities provide support for a short-run one-way causal association running from FDI to growth and a long-run two-way causal connection among FDI and growth. Furthermore, in the long run, unidirectional causal relationships running from each institutional quality indicator to economic growth and FDI are set out.

Highlights

In an increasingly globalized worldwide economy, investment is viewed as a catalyst for economic growth
Concerning the average values of the variables regarding institutional quality, we notice a poor governance in the CEECs
Using panel data for 11 Central and Eastern European countries from 2003 to 2016, current paper examined at first glance the impact of foreign direct investment (FDI) on economic growth, covering institutional quality measures, as well as several sustainable development goals established in the 2030 Agenda for Sustainable Development [48]

Summary

Introduction

In an increasingly globalized worldwide economy, investment is viewed as a catalyst for economic growth. Foreign direct investment (FDI) influx supports development via productivity intensification through new investment, improved technologies, and decision-making abilities to the host nations [1,2,3,4,5,6]. FDI lifts the host nation’s economy by rising investible capital and by technological spillovers [7,8]. FDI is regarded as a collection of physical and immaterial capital that is shifted across borders and spill over to the local economy producing growth [9]. FDI is a crucial factor in global economic integration and generates direct, stable, and long-lasting relationships between economies [10]. Farla, et al [11] marked off the “crowding in” which pretend that FDI will bring more investment from private inland sources and the “crowding out” which is the reverse

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