The Impact of Foreign Direct Investment from the Nordic Countries on the Structure of Lithuania’s Economy

Abstract

Foreign direct investment is considered a driving force for economic growth, boosting trade and reducing unemployment. The recipient country benefits from technology transfer. The host economy develops and changes its economic structure. The Baltic states, including Lithuania, attracted high volumes of Nordic FDI. The aim of the study is to evaluate the impact of inwards Nordic FDI on the economic structure of Lithuania. The research employed descriptive statistics, correlation regression and the Granger causality test. The stationarity of the data was checked by the augmented Dickey–Fuller test to evaluate the impact on the structural changes. The sectors were divided into primary, secondary and tertiary. The data have been structured according to the economic activities corresponding to the Nomenclature statistique des activités économiques dans la Communauté européenne (NACE) classification of economic activities in the European Union. The primary sector includes agriculture, forestry and mining. The secondary factors included manufacturing, construction, water and electricity supply, tertiary cover services and trade. Furthermore, for our research, we chose GDP per capita and gross value added (GVA). The GVA was chosen to evaluate the impact of each Nordic country’s FDI on different sectors. The sectoral contribution to the economy is expressed as GVA. This research was performed from three perspectives. The first is focused on the analysis of the flows and distribution of FDI in Lithuania by economic sector in the Nordic countries. Furthermore, we have analysed the impact of foreign direct investment in the Nordic countries on Lithuania’s economic growth. The final subsection is devoted to estimating the causal link between the distribution of FDI by economic sector in the Nordic European countries and the causal link between economic indicators in these sectors. Our study contributes to internationalization theory by extending it from a sectoral angle. In particular, the need to understand the impact of FDI from a single country on the host economy and its economic structure should be emphasized. We claim that inwards FDI might change the economic structure of the host economy in a positive or negative way. In addition, FDI should contribute to the economic advancement of host countries, which means that the tertiary sector should expand. The results of our study might be useful for improving FDI promotion policy in Lithuania while seeking long-term results in the expansion of the tertiary sector, especially knowledge-intensive activities. Main conclusion. We can conclude that Lithuania has the potential to benefit from inwards Nordic FDI; however, it still does not take all the advantages of these opportunities, as some FDI has no impact on the expansion of the tertiary sector or any sector at all.