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The Effects Of Fdi Net Inflow On The Current Account Of Southeast Europe Countries – A Panel Causality Analysis

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  • Radovan Kovačević

Abstract

This paper examines the relationship between the current account (CA) and the foreign direct investment (FDI) net inflow in the Southeast Europe (SEE) countries. The panel data framework of five SEE countries for the period 2000-2020 are used. Our research has three main findings. First, using the vector autoregressive VAR(2) model, a long-run relationship between the CA and the net FDI inflow is identified (a 1% increase in the net FDI inflow leads to a 1.011% increase in the CA deficit). This suggests that FDI stock will put upward pressure on the CA of the SEE countries in the long run. Second, applying the panel VAR model Granger causality test, we found that there is a two-way directional Granger causality. Third, our results from the vector error correction (VEC) model suggest that about 26% of the dynamics of the CA deficit adjusts to the long-run equilibrium path with the net FDI inflow each year.

Suggested Citation

  • Radovan Kovačević, 2022. "The Effects Of Fdi Net Inflow On The Current Account Of Southeast Europe Countries – A Panel Causality Analysis," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 67(235), pages 95-122, October –.
    • Handle: RePEc:beo:journl:v:67:y:2022:i:235:p:95-122
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    More about this item

    Keywords

    Southeast Europe; foreign direct investment; current account; vector autoregressive model; vector error correction model; Granger causality;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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