Verification of the relationship between FDI and GDP in Poland

Abstract

The paper analyses the impact of the factors of production on economic growth in Poland in the years 1992–2012, with particular focus on the impact of foreign direct investment (FDI), and strives to verify whether a causality relationship occurred between GDP and FDI, i.e. whether high GDP dynamics attracted FDI inflows and whether this investment contributed to GDP growth. The Vector Error Correction Method impulse responses and variance decomposition analysis confirmed the bi-directional relationships between FDI and GDP in Poland. However, the impact of GDP on attracting FDI inflows to Poland is stronger than that of FDI on GDP growth. Polish developmental policy should concentrate on three essential determinants (pillars) of growth, namely employment growth, attracting FDI (with emphasis on improvement in the type of inflowing investment), and increasing the value and productivity of domestic investment.