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The impact of fiscal policy on foreign direct investments. Empiric evidence from Romania

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  • Magdalena Rădulescu
  • Elena Druica

Abstract

Economic stimulus programmes can be an incentive for foreign investment, but many developing countries do not have the financial resources to successfully compete with the investment promotion packages of developed countries. Once the Central and Eastern European (CEE) countries acceded to the eurozone, they will lose their monetary instruments to adjust the macroeconomic imbalances. Using linear regression, this article presents the impact of the fiscal and monetary policies on attracting the foreign direct investments (FDIs) in Romania, based on monthly data series during 2000–2010. Based on economic literature and on such empiric analysis, the article will propose some directions for the Romanian macroeconomic policy in the short-term in the context of crisis, because the FDIs are the engine for recovery and economic growth. In Romania, empiric results have shown that monetary factors such as higher interest rates and higher inflation attracted FDIs. Fiscal factors (mainly direct taxes) seem to play a less important role, being relevant only in the long-term. So, Romania should also focus on improving the other non-financial factors that greatly influence the investment environment here (infrastructure, legal and political stability). Only then can the fiscal stimulus be effective in attracting FDIs and supporting the economic growth in the same time. The article begins with presenting some findings from the economic literature regarding taxation and FDIs, it then follows the empiric analysis for Romania and ends with conclusions and some issues for a further research.

Suggested Citation

  • Magdalena Rădulescu & Elena Druica, 2014. "The impact of fiscal policy on foreign direct investments. Empiric evidence from Romania," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 27(1), pages 86-106, January.
  • Handle: RePEc:taf:reroxx:v:27:y:2014:i:1:p:86-106
    DOI: 10.1080/1331677X.2014.947133
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    Cited by:

    1. Jangkung Handoyo Mulyo & Imade Yoga Prasada & Agus Dwi Nugroho, 2023. "Impact of political and security stability on food security in developing countries: Case of Africa, Asia, Latin America and the Caribbean," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 69(9), pages 375-384.

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