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Exploring Foreign Direct Investment–Economic Growth Nexus—Empirical Evidence from Central and Eastern European Countries

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  • Ștefan Cristian Gherghina

    (Department of Finance, The Bucharest University of Economic Studies, Bucharest 010374, Romania)

  • Liliana Nicoleta Simionescu

    (Department of Finance, The Bucharest University of Economic Studies, Bucharest 010374, Romania)

  • Oana Simona Hudea

    (Department of Economic and Administrative Sciences, Faculty of Administration and Business, University of Bucharest, Bucharest 050107, Romania)

Abstract

This study aims to examine the link between foreign direct investment (FDI) inflows and economic growth, also considering several institutional quality variables, as well as sustainable development goals (SDGs) set in the 2030 Agenda for Sustainable Development. By estimating panel data regression models for a sample of 11 Central and Eastern European countries, from 2003 to 2016, the empirical outcomes provide support for a non-linear relationship between FDI and gross domestic product per capita. Regarding institutional quality, it is found that control of corruption, government effectiveness, regulatory quality, rule of law, and voice and accountability positively influence growth, while political stability and absence of violence/terrorism is not statistically significant. Moreover, SDGs such as poverty, income distribution, education, innovation, transport infrastructure, and information technology are noteworthy drivers of growth. The outcomes of panel fully modified and dynamic ordinary least squares partly confirm the findings. The panel vector error-correction model Granger causalities provide support for a short-run one-way causal association running from FDI to growth and a long-run two-way causal connection among FDI and growth. Furthermore, in the long run, unidirectional causal relationships running from each institutional quality indicator to economic growth and FDI are set out.

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  • Ștefan Cristian Gherghina & Liliana Nicoleta Simionescu & Oana Simona Hudea, 2019. "Exploring Foreign Direct Investment–Economic Growth Nexus—Empirical Evidence from Central and Eastern European Countries," Sustainability, MDPI, vol. 11(19), pages 1-33, September.
    • Handle: RePEc:gam:jsusta:v:11:y:2019:i:19:p:5421-:d:272341
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