Outward foreign direct investment and economic growth in Romania: Evidence from non‐linear ARDL approach

Abstract

AbstractGlobally, the outward foreign direct investment (OFDI) has significantly increased during recent years. In the light of OFDI's role in determining the GDP growth rate, it is necessary to assess how economic growth rate responds to such outflows. Based on the non‐linear autoregressive distributive lag (NARDL) model, the present study investigates the long‐run and short‐run asymmetric impacts of OFDI on the economic growth in Romania covering the period 1990–2019. The results indicate that both an increase and a decrease in OFDI have a positive and significant impact on Romania's economic growth, with a greater effect arising from the increase in OFDI. Our research adds to the preceding literature by providing new insights into the OFDI‐led growth hypothesis. The results of the present study portray the growth‐enhancing effects of OFDI, which are consistent with the notion that firms conduct OFDI in order to combine domestic output with overseas output to decrease expenditures and to enhance their competitiveness both at global and domestic levels. Thus, an increase in OFDI is both a cause and a consequence of the home country's economic growth.