Causal Links between Trade Openness and Foreign Direct Investment in Romania

Malsha Mayoshi Rathnayaka Mudiyanselage, Gheorghe Epuran and Bianca Tescașiu
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Malsha Mayoshi Rathnayaka Mudiyanselage: Faculty of Economics Sciences and Business Administration, Transilvania University of Brasov, Universitatii Street, No. 1, Building A, 500068 Brasov, Romania
Gheorghe Epuran: Faculty of Economics Sciences and Business Administration, Transilvania University of Brasov, Universitatii Street, No. 1, Building A, 500068 Brasov, Romania
Bianca Tescașiu: Faculty of Economics Sciences and Business Administration, Transilvania University of Brasov, Universitatii Street, No. 1, Building A, 500068 Brasov, Romania
Authors registered in the RePEc Author Service: Bianca Tescasiu

JRFM, 2021, vol. 14, issue 3, 1-18

Abstract: In this increasingly globalized era, foreign direct investments are considered to be one of the most important sources of external financing for all countries. This paper investigates the causal relationship between trade openness and foreign direct investment (FDI) inflows in Romania during the period 1997–2019. Throughout this study, Trade Openness is the main independent variable, and Gross Domestic Product (GDP), Real Effective Exchange Rate (EXR), Inflation (INF), and Education (EDU) act as control variables for investigating the relationships between trade openness (TOP) and FDI inflow in Romania. The Auto Regressive Distributed Lag (ARDL) Bounds test procedure was adopted to achieve the above-mentioned objective. Trade openness has negative and statistically significant long-run and short-run relationships with FDI inflows in Romania throughout the period. Trade openness negatively affects the FDI inflow, which suggest that the higher the level of openness is, the less likely it is that FDI will be attracted in the long run. The result of the Granger causality test indicated that Romania has a unidirectional relationship between trade openness and FDI. It also showed that the direction of causality ran from FDI to trade openness.

Keywords: foreign direct investment; trade openness; ARDL model Romania; panel data analysis (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jjrfmx:v:14:y:2021:i:3:p:90-:d:504842

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