Foreign Direct Investment and Economic Growth in the Republic of Kosovo—Empirical Evidence

Lumnije Thaçi,Merita Rushiti

doi:10.22158/asir.v2n4p129

Abstract

<p><em>Whether Foreign Direct Investment (FDI) is beneficial to host country growth or not, it is a question debated since a long time (Acaravci &amp; Ozturk, 2012). This paper will examine the flow of FDI and their impact on economic growth in the Republic of Kosovo. This correlation between FDI and economic growth will be studied through regression (Quantile Regression Median). The results of the study will be obtained using multiple regression to evaluate the effect of FDI on the economy, using secondary annual data from 2007 to 2017. In addition to the basic model to be used to assess the impact of FDI on total growth amount, we have also decomposed them into the second model: FDI in manufacturing and FDI in services as well as other FDI. The research results show that the impact of total FDI and FDI in manufacturing is negative and insignificant while the impact of FDI in services and other FDI is positive but insignificant to economic growth in Kosovo. Due to the importance of FDI, as an important source of capital in a transition country such as Kosovo, these results are informational for decision-makers to improve policies in order for the country to become more attractive in attracting FDI. </em></p>

Highlights

The last two decades have witnessed large amounts of Foreign Direct Investment (FDI) inflows in the developed and emerging world (Asteriou & Moudatsou, 2014)
The main objective of this study is to estimate the flow of FDI and its impact on economic growth and development, using secondary annual data from 2007 to 2017 in the Republic of Kosovo
The results of the study showed that total FDI has a negative and insignificant effect on economic growth

Summary

Introduction

The last two decades have witnessed large amounts of Foreign Direct Investment (FDI) inflows in the developed and emerging world (Asteriou & Moudatsou, 2014). Borensztein, Gregorio and Lee (1997) tested the effect of FDI on economic growth in a cross-country regression framework, on FDI flows from industrial countries to 69 developing countries over the last two decades Their results suggest that FDI is an important vehicle for the transfer of technology, contributing relatively more to growth than domestic investment. Wang (2009), studied the heterogeneous effects of different sector-level FDI inflows on host country’s economic growth, employing data from 12 Asian economies over the period of 1987 to 1997, using the regression model, the empirical analysis included 12 Asian economies: Bangladesh, Mainland China, Hong Kong, India, Korea, Malaysia, Pakistan, Philippines, Singapore, Thailand and Taiwan. FDI inflows, domestic investment, trade openness and secondary education have positive impacts on economic growth, while the inflation rate seems to have a negative effect. The Jarque - Bera test - according to the rule of the decision if Jargue Bera ≤ 4.61, at 5% of significance level, in our analysis Jarque Bera is 0.745141, which means that the value 0.745141 ≥ 4.61

Objective

Findings

Conclusions and Recommendations